LABOUR LAW II – HANDOUT

INTRODUCTION TO SOCIAL SECURITY

Introduction
• The Concept of social security has evolved over a period of time. In primitive societies
it was mankind’s struggle against insecurity and his struggle to protect himself from
the vagaries of nature or to find the basic necessities of day-to-day life.
• Later, community living came into existence, which created the family to provide
adequate social measures for the needy.
• With rapid industrialisation, there was break in the family setup, destroying the
traditional system and resulting in the need for an institutionalised and state-cum-
society regulated social security arrangement.
• Therefore, the concept of social security constantly evolves and widens and there is no
commonly accepted definition of the term.

Concept of Social Security

• Social security is a dynamic concept. Being a dynamic subject no rigid limit can be
laid down for all time to come.
• It varies from time to time and country to country. The growth and development of
national economy will profitably affect the social security scheme.
• Whatever may be the scope of the social security it is now considered in almost all the
countries of the world developed and developing indispensable chapter of national
program to strike and the root of poverty, unemployment and disease.
• Social security may provide for the welfare of persons who became incapable of
working by reason of old age, sickness and invalidity and are unable to earn anything
for their livelihood.
• It has been considered essential for workers, though with their development of the idea
of welfare state, its scope should be widened to cover all section of society.
• The quest for social security and freedom from want and distress has been a consistent
urge of man through the ages.
• This urge has assumed several forms, according to the needs of the people and their
level of social consciousness, the advance of technology and pace of economic
development.

1
• From its modest beginning in few countries in the early decades of the last century
Social security has now become a fact of life for millions of people, throughout the
world.
• Social security measures have introduced an element of stability and protection in the
midst of stress and strains of life.
• It is a major aspect of public policy and the extent of its prevalence is a measure of the
progress made by a country towards an ideal of a welfare state.
• Freedom from “want” maybe a modern slogan but the aspiration for such a freedom is
an ancient as mankind itself. The degree of success achieved in reaching this goal has
varied from time to time and country to country according to the means available and
adapted.
• Private savings, commercial insurance in the joint family system have all been tried at
different times and different places but achieved a very limited success. Everyone does
not have the capacity or the foresight to carry out a wisely, devised plan of saving or
insurance.
• Moreover, individual members of small means can hardly provide effective security
against their contingencies like sickness, maternity, invalidity, employment injuries,
unemployment, old age, death and other emergencies expenses. Joint family system
thus provides security to a certain extent
• In the industrial field then concept of employer’s liability was pressed into service to
provide assistance to workers to achieve the same aim i.e the security. This implied that
an employer who brought out dangerous machinery on his premises must be held
responsible from the consequences flowing from the use of such machinery.
• In the event of accident, he should be made liable to compensate his workman. This
however conferred security only in the event of accidents at work.
• In other respects, the worker continued to be unprotected. The growth of industrialized
communities made it evident that most people have to depend on the capacity to work
in a day’s work to meet their need for the day and that whatever they are to be at work,
for any reason, whatever they faced privation ad hardship. It is to meet these kinds of
need that the concept of social security developed.

2
Evolution of Social Security

• The quest for social security and freedom from want and distress has been the consistent
urge of man through the ages.
• This urge has assumed several forms, according to the needs of people and their level
of social consciousness, the advance of technology and the pace of economic
development.
• From its modest beginning in a few centuries in the early decades of the last century,
social security has now become a fact of life for millions of people, throughout the
world.
• Social security measures have introduced an element of stability and protection in the
midst of stress and strains of life.
• It is a major aspect of public policy and the extent of its prevalence is a measure of the
progress made by a country towards the ideal of a welfare state.
• At all times and in every in every society, at every stage of development, there have
been sick people requiring medical aid and care, handicapped and old people unable to
work for a living. Quite apart from this there are people who are unemployed and are
unable to make both ends meet.
• According to Sir William Beveridge there five giants on the road of reconstruction,
these are want, disease, ignorance, squalor and idleness. The fear, created by these
giants has crossed the limit where individuals could not have controlled them
individually or in small groups.
• In early days when human needs were limited and livelihood was based primarily on
agriculture, joint families, and craft guilds.
• Churches, charitable, philanthropic and other religious institutions, provided these
securities. In some countries poor houses were also established.
• However, the system based on voluntary charity proved to be inadequate and
unsatisfactory later on. In some countries these were supplemented with mutual benefit
schemes and state aids.
• Today when the world is passing through an industrial era and life is becoming more
and more individualistic, yet complex and complicated because of industrial and
scientific advancement, the risks of life have been increased manifold.
•
With the introduction of industrialization and the growth of the society, it has been
increasingly felt that the institution of social security should be established.

3
• “The historic sources of social insurance idea are found in the genesis of industrial
revolution in the 12th century in Europe. Social insurance scheme were also found in
the guild benefit societies.”
• Leaving out under developed countries, the reactions of governments to this new
realization varied depending, inter alia, upon the particular political situation existing
in the country and the country’s economic development.
• It is true that all democratically elected governments are under constant pressure from
the electorate to extend the scope of their service but the response of the governments
can vary according to their political philosophy.
•
It is interesting that the countries that took the first hesitant step towards social security
at this time were under left-wing governments. The Social Reform Act of 1933 of the
Social Democratic government in Denmark codified, simplified and extended social
insurance and social assistance legislation.
• It is said that the late Abraham Epstein, the executive secretary of the American
Association of Social Security is credited with originating the term ‘social security’.
• The term ‘social security’ which originated in the USA has spread through the world.
The term has been used in such variety of ways and so broadly, as to sometimes lose
any value as a term of precise meaning.
• The Labour Government’s Social Security Act, 1938, in New Zealand provided the
most comprehensive interpretation of social security at that time.
• Today, social insurance has spread throughout the world. It is an integral feature of
social democracy. In social insurance may lie the answer to the challenge of
totalitarianism.
• Lot of thinking has gone behind the provision of proper social security measures for
industrial workers both in the country and also in the industrial level.
• The right of social security is one of the significant rights that have been set out in the
Universal Declaration Human Rights, which the general assembly of the UN adopted
and proclaimed on December 10, 1948.
• The declaration proclaimed that everyone, as a, member of society, is entitles to social
security and is entitled to realization, through national effort and international co-
operation and in accordance with the organisation and resources of each state, of the
economic, social and cultural rights indispensable for his dignity and free development
of his personality.

4
• Earlier in May 1955 was laid down the grand charter of Labour, popularly known as
the Declaration of Philadelphia, by the member states of the ILO.
•
Among its aims and objects inter alia, the declaration affirmed “to secure the extension
of social security measures to provide a basic income to all in need of such protection
and comprehensive medical care and to make provisions for maternity protection.
• A Significant milestone in acceptance and promotion of the right of social security was
earlier reached with the establishment of the ILO in 1919.
• ILO played a significant role in evolving universally acceptable principles and
standards of social security which guided the development of the field of social security
throughout the world.
•
The need for providing social security benefits was recognized by the International
labour organization since its inception of the Twenty-Eight social security conventions,
Convention (No.102) concerning Minimum Standard of Social Security is
significant.
• It is a comprehensive instrument covering almost every branch of social security and
providing for minimum standard in respect of benefits payable in large number of
contingencies like sickness, unemployment, old age, death, employment injury,
invalidity etc.
• In India social security measures to product industrial workers against sickness, old age,
invalidity, unemployment etc., are of recent origin. The Workmen's Compensation
Act, 1923 is perhaps the first legislation which may be described as a social security
measure in a broad sense.
• The importance of social security has been emphasized by different political leaders,
social reformers and economists in different ways.
• Sri V. V. Girihas rightly remarked that social security, as currently understood, is one
of the dynamic concepts of the modern age which is influencing social as well as
economic policy.
• It is the security that state furnishes against the risks which an individual of small means
cannot, today stand up to by him or even in private combination with his fellow
countrymen..
• Ways adopted by the various countries may be different but the purpose is the same
everywhere. The Concept of social security has united them all. Although the term was

5
 mode popular on during the 30’s of the last century, the philosophy behind the scheme
was quite popular much before.
• Way back in 1931, Royal Commission on Labour made comprehensive survey of
almost all the problems relating to labour (including social security) and made a number
of recommendations for sickness benefits and old age.
• Though India became independent on 15th August 1947 transfer of power took place
in 1946 when an interim government formulated a five year programme for the welfare
of the labour class. The Significant features of the Programmes were:
▪
Organisation of health insurance scheme, applicable for workers to start with;
▪ Revision of workmen's compensation act;
▪ Central law for maternity benefit; and
▪ Extension to other classes of workers, or the right, within specific limits, to
leave with allowance during the sickness.
• Social security received new vigor and strength in the hands of Professor B. P.
Adarkar who framed a scheme to provide for health insurance to workers. The scheme
was later modified by ILO experts, Mr. M. Staok and Mr. R. Rao (who were invited by
the Government of India to examine it), which culminated in the enactment of the
Employees State Insurance Act, 1948.
• Thus the modern society, being a welfare society, has assumed this responsibility of
providing social security against these risks by social insurance supplemented by quasi-
social insurance and social assistance or by combination of all or any of these devices.
• In a modern welfare state, comprehensive social security schemes take care of persons
from “Womb to tomb”. Social security has now become a fact of life for millions of
people throughout the world and its measures “introduce and element of stability and
protection in the midst of the stresses and strains of modern life”.

Constituents of Social Security

• In view of the above definitions of social security, the constituent of social security may
be classified into the following two categories:

i) Traditional constituent of social security and

ii) Modern constituents of social security

6
Traditional Constituents of Social Security:
• The Concept of social security as indicated earlier is the product of 1930’s. Before this
concept certain security measures were in operation without referring to the term
‘Social security’ as such.
• The term refers to set of measures designed to provide medical care and income security
to the members of the society entitled to. In actual practice, there are the following two
constituents of social security viz.,
i) Social Insurance and
ii)Social Assistance.

i) Social Insurance

• The ILO defines social insurance as a scheme that provides benefits for persons of small
earnings granted as of in amounts which combine the contribution of the insured with
subsidies from the employee and the state.
• The social insurance protects persons of small earnings. The purpose of social insurance
is render the wage earner as independent of poor relief as possible on the principal that
his wage should include an insurance premium conversion the risk of its involuntary
loss, the inability of the State being mere subsidy.
• Shri K N Vaid defines social insurance as the “giving, in return for contribution
benefits up to subsistence level, as of right and without means test so that an individual
may build freely upon it. Thus, social insurance implies that it is compulsory and that
men stand together with their fellows”.
• Social insurance has also been defined as “a cooperative device which aims at granting
adequate benefits to the insured on compulsory basis in times of unemployment,
sickness and other contingencies with a view to ensure a minimum standard of living,
out of a fund created out of the tripartite contributions of the workers employers and
state”.

The Characteristic of Social Insurance

7
 i) A Common fund is established by employer, state and the worked out of which all the
benefits in cash or kind are paid.

ii) The Contribution of the workers is nominal which generally does not exceed their
paying capacity, whereas the employer and the state provide the major portion of the
finances.

iii) The Object of the benefit is ensuring the maintenance of a minimum standard of living
to the beneficiaries during the period of partial or total loss of income.

iv) Benefits are granted as a matter of right and without any means test thus, they do not
touch the self-respect of the beneficiaries.

v) It is provided on compulsory basis so that its benefit might reach to all the needy persons
of the society who are sought to be covered by the scheme.

vi) Lastly, social insurance reduces the sufferings arising out of the contingency faced by
an individual. Contingencies which they cannot prevent.

ii) Social Assistance

• The ILO defines social assistance scheme as “one that provides benefits to persons
of small means granted as of right in amounts sufficient to meet a minimum standard
of need and financed from taxation”.
• Social assistance programs provide benefits sufficient to meet the minimum needs of
persons of small means. The special characteristic of these measures is that they are
financed wholly from general revenues of the state.
• Thus, it is the state which takes the initiative to adopt these measures for the benefits of
common men. Benefits under the scheme of social assistance are given as a legal right
to them, provided they fulfil certain conditions.
• However, the benefits provided and needs test applied differ from country to country.
The first risk to be covered was that of old age, but gradually non-contributory benefits
were introduced for invalids, survivors and unemployed persons as well. Today social
assistance programs cover programs like unemployment assistance, old age assistance
and national assistance.

8
 • Benefits under social assistance scheme are supplementary to social insurance and,
therefore, they both go side by side. Both are integral parts of social security measures.
But social assistance is purely a governmental affair, while social insurance is only
partly financed by the state.
• Benefits under social insurance scheme are granted to those who pay contribution.
Whereas social insurance scheme are granted to those who pay contribution. Whereas
social assistance is given free. Thus, social insurance is contributory while social
assistance is free.
• A major future of most social insurance schemes is that they are financed mainly
through contribution by employees and employers, in some cases, subsidy is granted
by state. The benefits to insured persons are linked to their contributions.
• Most of these programs are compulsory and for specifically defined categories of
workers and their employers are required by law to participate in the programs.

Characteristics of Social Assistance

• Social assistance programs are financed wholly from the general revenues of the state
and hence, it is purely a governmental affair.

• The object of the benefits is to meet the minimum needs of the presence of small means.

• The benefits are granted as a matter of right.

• The benefits provided free of cost, provider certain prescribed conditions are fulfilled.

• The benefits provided and means tests applied differ from country to country.

Modern constituents of social security

With the completion of the industrial revolution the traditional institutions of social
security become inadequate on account of numbers of factors. Some of the important
factors are:

• The worker’s dependence on money wage became complete because of the alienation
from agriculture.

• The workers who still retained and link with village had to fight on two fronts because
of the divided and scattered family in the village and the town. It resulted into the

9
 deterioration in agriculture. But on the whole the tendency was towards the emergence
of permanent industrial workers class.

• In view of this growth of labour laws, child labour as a source of additional income
ceased to be useful institution for the industrial workers.

• With the growth of industries under capitalism chronic unemployment with periodical
accentuation came to stay as future of the economy.

• With increased intensification of labour and/or the depletion of plants and inadequate
working conditions, increasing number of industrial hazards and accidents came to be
regarded as a common and almost unavailable risk for industrial workers.

• Social security measures have a twofold significance for every developing country.
▪ They constitute an important step towards the goal of a welfare state, by improving
living and working condition and affording the people protection against the
uncertainties of the future.
▪ These measures are also important for every industrialization plan, for not only do
they enable workers to become more efficient, but they also reduce wastage arising
from industrial disputes causing work stop pages.
• The man-day lost an account of sickness and disability also constitute a heavy drain on
the slender resources of the worker and on the industrial output of the country.
• Lack of social security impedes production and prevents the formation of a stable an
efficient labour force. Social security is therefore, not a burden but a wise investment
which yields good dividends in the long run.

Meaning and Definition of Social Security

• A Comprehensive definition of social security has been in ILO report that:-

“Social Security is the security that furnishes through appropriate organisation,
against certain risks to which its members are exposed. The risks are essentially
contingencies against which the individual of small means cannot effectively provide
by his own ability or foresight alone or even in private combination with fellows”.

• The aforesaid definition has later been redefined by the ILO itself in the following
words:

10
 “It is convenient to regard as social security services only as such schemes as provide
a citizen with benefit designed to prevent or cure disease, to support him when unable
to earn and to restore him to gainful activity.”

• In India, the National Commission on Labour has endorsed the ILO definition of
social security and observes:

“Social Security envisages that the members of a community shall be protected by

collective action against social risks causing undue against social risks causing
hardship and privation to individuals whose prime resources can seldom be adequate
to meet them”.

• ILO Social Security (Minimum Standards) Convention 1952 defines “social

security” to mean:

“The result achieved by a comprehensive and successful series of measures for

protecting the public (or a large sector of it) from the economic distress that, in the
absence of such measures, would be caused by the stoppage of earning in sickness,
unemployment or old age and after death; for making available to that same public
medical care as needed; and for subsiding families bringing up young children”.

• An ILO/ Norway National Seminar on Social Security was held in New Delhi from 19 th
to 30th September. 1977. It was tripartite in character.
• The Seminar redefined the concept of social security as “Social Security is the
protection furnished by the society to its members through a series of public measures
against the economic and social distress that are caused due to absence of earnings
resulting from sickness, maternity/employment injury (occupational diseases).
Unemployment, invalidation, destitution, social disability and backwardness, old age
and death, and further to provide health care, including prevent measures.”
• According to this definition, social security measures would include
i) Social insurance
ii) Social assistance
iii) Family benefits
iv) Health care and other social services, and
v) Related social welfare services
• Besides, the seminar recommended that provision for following facilities be made;

11
 ▪ Provision of basic needs, essential services, medical care and legal aid;
▪ Work guarantee as an integral part of social security
▪ Adequate and effective measures for rural social security:
▪ Rate of interest paid to the provident fund beneficiaries should be well compatible
with the rates of the banks;
▪ Long term social security benefits be linked with the cost of living index
▪ Creation of alternative investment opportunities for the provident fund money may
yield higher returns:
▪ Income redistribution through social security programmes
▪ Integration of various social security institutions
• It is, thus, obvious that the seminar recommended for more comprehensive social
security measures.
• According to Lord Beveridge, the social security “is an attack on five giants- wants,
disease, ignorance, squalor and idleness”.
• Prof.Watkinson defined social security as “the security of an income to take the place
of earning when they are interrupted by unemployment, sickness or accident, to provide
for retirement through old age, to provide against loss of support by death of another
person and to meet exceptional expenditure connected with birth, death or
marriage…the purpose of social security is to provide an income upon a minimum and
also medical treatment to bring the interruption of earnings to amend as soon as
possible”.
• Friedlander defines social security as “programme of protection provided by society
against these contingencies of modern life…sickness, unemployment, old age,
dependency, industrial accidents and invalidism – against which the individual cannot
be expected to protect himself and his family by his own ability or foresight”.
• In the Encyclopedia of social work, social security has been defined as “the endeavor
of the community, as a whole, to afford itself to the utmost extent possible to any
individual during periods of physical distress inevitable or illness or injury and from
the economies distress consequent on reduction or loss of earnings due to illness,
disablement, maternity, unemployment, old age or death of the working members.”
• Social security may generally be defined as protection provided by the society to its
members against providential mishap over which a man has no control. This protection
is provided through proper organization.

12
 • In western countries, it is generally provided to the individual workers by the state and
the employer both and as such the term “social security” has come to be associated with
them.
• Thus, social security is the security which the society especially the state, and the
employers furnish through appropriate organizations to the individual members of the
society who are exposed to certain risks.

Objective of Social Security

The aim of all social security measures is three-fold in nature:

▪ Compensation
▪ Restoration and
▪ Protection.
• Compensation leads to income security to the workers and is based upon the idea that
during spells of risks, the individual both destitution and loss of health, limbs, life or
work.
• Restoration implies, core of the sick and the invalid re-employment and rehabilitation
and in a way, extension of the earlier concepts of the functions of social security.
• Prevention is designed to avoid the loss of productive capacity due to sickness, un-
employment or invalidity and render the available resources which are used up by
avoidable disease and illness and thus increase the material, intellectual and moral
wellbeing of the community.
• The development of services for prevention and rehabilitation should receive the
highest priority in social security policy.
• Prevention needs to permeate virtually the Government, the actions of the employers
and trade unions, the activities of voluntary bodies and most important of all, the actions
of individuals and families.
• The Social security has wider aims than prevention or relief of poverty. Its purpose is
also to give individuals and families, the confidence that their level of living and quality
of life will not in so far as is possible be greatly eroded by and social and economic
eventuality, this involves not just meeting needs as and when they arise but also
individuals and families to make the best possible adjustment could not be prevented.
In short, its main purposes have been widened class.

13
 • Besides the right to social security has been embodied in the declaration adopted by the
United Nation, General Assembly in 1948 and also has been granted under numerous
national constitutions.

Benefits provided under Social Security

The various benefits normally provided under a social security scheme are as follows:

Medical Care:

• Free medical care is provided as and when needed.

Sickness Benefit:

• Cash benefit is provided in the ever of sickness. This is often conditional which is given
on fulfilling certain contribution conditions and is usually limited in duration.

Maternity Benefit:

• Cash benefit is paid to insured women or even to the wife of an insured man in the event
of confinement.
• This is usually payable for six weeks before and six week after the delivery rates which
vary from half of the wages to full wages.
• In some countries some additional lump sum alones are also paid to enable the family
to buy new clothing toilet equipment and other things for the baby.

Accident Benefit:

• Cash benefit is paid for accidents a work. This may be in the forms of Temporary
Disablement benefit payable while the disablement lasts or if may be in the form of
pension for life, the amount of benefit depends on the extent of permanent Disablement.
• The benefit may also be the form of pensions for varying duration to dependents of
decease insured person.

Unemployment Benefit:

• The Benefit is payable to able bodied workers who are willing and available for
employment but are unable to find any work.

14
 • Entitlement to this benefit is also conditional on having paid certain contribution and is
usually limited to certain number of day or weeks.

Old Age and Invalidity Benefit:

• Pension is also payable in the event of invalidity, retirement or death of the employee,
Invalidity and retirement pensions are payable to the worker and the survivorship
pension are payable to his dependents. For all these pensions, different qualifying
conditions are attached.

Family Benefit:

• Lastly, in some of the western countries it is now recognized that it is the responsibility
of the state to support the family in bringing up children.
• The Others benefits are disablement benefit, Survivorship benefit, Dependants benefit,
Funeral benefit and Minor benefits.

Social Security Legislations in India

• Accordingly, the following legislative measures have been adopted by the Government
of India by way of social security schemes for industrial workers:
▪ Employees’ Compensation Act, 1923;
▪ Employees’ State Insurance Act, 1948;
▪ Employees Provident Funds and Miscellaneous Provisions Act, 1952;
▪ Maternity Benefit Act, 1961;
▪ Payment of Gratuity Act, 1972.
▪ Payment of Wages Act, 1936;
▪ Factories Act, 1948;
▪ Minimum Wages Act, 1948;
▪ Plantation Labour Act, 1951;
▪ Contract Labour (Regulation and Abolition) Act, 1970;
▪ Bonded Labour (Abolition) Act, 1976;
▪ Inter-State Migrant Workmen (Regulation of Employment and Conditions of
Service) Act, 1979;
▪ Child Labour (Prohibition and Regulation) Act, 1986;

15
 ▪ Building and other Construction Workers (Regulation of Employment and
Conditions of Service) Act, 1996;
▪ Beedi and Cigar (Conditions of Employment) Act, 1996.

• From the above observations it can be concluded that there is considerable development
in social security measures during the post-independence period.
• Even from the perusal of Five-Year Plans, it can be inferred that the State has moved
to translate the objectives stated in the Directive Principles of State Policy to statutes
which are to safeguard the interests of workers against sickness, accident, disease, old
age and unemployment.
• Particularly, the programmes of the Sixth Plan were focussed on the effective
implementation of different legislative enactments regarding labour and special
programmes for agricultural labourers, artisans, handloom weavers, leather workers
etc., and it paid special attention to the problems of bonded labour, child labour, women
labour, contract labour, construction labour and inter-state migrant labour.
• The Eighth Five Year Plan also pointed out that the enforcement of labour laws,
especially laws relating to the unorganised labour, should be effective.

Social Security and the Indian Constitution

• The Constitution of India guarantees fundamental rights to every citizen including the
right to life and, as the Supreme Court has pointed out, the right to livelihood is inherent
in the right to life.
• The Ultimate aim of social security is to ensure that everyone has the means of
livelihood and hence the right to social security and protection of the family are integral
parts of right to life.
• Further, the Supreme Court has also held that security against sickness and disablement
and also right to family pension form part of the right to life under Article 21.
• The Directive Principles of State Policy set standards of achievement based on a
socialistic pattern of society as it embraces principles and policies pertaining to social
security measures which are to be followed by the State in the future. It is pertinent to
discuss the following provisions which are relevant to social security:
▪ To Secure a Social Order for the Promotion of Welfare of the People;

16
 ▪ Directives to the State to Secure Social Security Measures While Enacting
Legislations;
▪ Adequate means of livelihood;
▪ Proper distribution of ownership and control of the material resources of the
community so that it may sub-serve the common need;
▪ Prevention of the concentration of wealth and means of production;
▪ Equal pay for equal work for men and women;
▪ The health and strength of workers and childhood and youth are protected against
exploitation;
▪ Right to Work, to Education and to Public Assistance in Certain Cases;
▪ Provision for Just and Humane Conditions.

• Article 43 requires the state to strive to secure to the worker work, a living wage,
conditions of work ensuring a decent standard of life and full enjoyment of leisure and
social and cultural opportunities.
• In Standard Vacuum Refining Co. of India v. Workmen, AIR 1961 SC 895, 901 it
has been observed that every workman shall have a wage which will maintain him in
the highest state of industrial efficiency, which will enable him to provide his family
with the material things which are needed for their health and physical well-being,
enough to enable him to discharge his duties as a citizen.
• From the above discussion it is clear that social security measures have introduced an
element of stability and protection in the midst of the stresses and strains of modern
life.
• Lack of social security impedes production and prevents the formation of a stable and
efficient labour force.
• Social security is, therefore, not a burden, but a wise investment which yields good
dividends in the long run.

ILO on Social Security

17
• The International Labour Organization is one of the 12 specialized agencies of UN. It
has one of the most effective and well-developed mechanisms for human rights
protection in the international system.
• The Preamble of ILO states the objective of
▪ regulating the hours of work including the establishment of maximum working
days and weeks,
▪ the regulation of labour supply,
▪ the prevention of unemployment,
▪ the provision of adequate living wage,
▪ the protection of workers against sickness, disease and injury arising out of his
employment,
▪ the protection of children, young persons and women,
▪ provisions for old age and injury,
▪ recognition of the principle of equal remuneration for work of equal value,
recognition of the principle of freedom of association,
▪ the organization of vocational and technical education and
▪ other such measures.
• The Declaration of ILO categorically states that the ILO frames international industrial
jurisprudence.
• It envisages measures for entering into agreements on basic labour standards and
provides guiding principles for policy and administration throughout the world.
• The First World War caused a setback to industries. Failure of some nations to adopt
humane conditions of labour was seen as an obstacle in the way of other nations which
desired to improve labour security conditions in their own countries.
• In these circumstances, it was realized that permanent world peace could not be
achieved by achievement of political and economic justice alone, but that it required
the securing of social justice also.
• The need for workers’ well-being, regulation of labour supply, the prevention of
unemployment, provision for adequate living wage, protection of weaker sections,
provision for sickness, disease, injury, old age and protection of young persons and
women led to the creation of ILO in 1919 as a part of League of Nations by Part XIII
of the Treaty of Versailles.

18
 • The Treaty is the first known to history for containing a provision dealing with labour
and provides for establishing a standard setting mechanism called ILO. The ILO is
distinct from other international institutions as its major concern is social justice.
• The aims and purposes of this institution were reaffirmed in 1944 through the
Philadelphia Charter. In 1946, the ILO and United Nations entered into an agreement
and ILO was recognized as a specialized agency of the UN.
• In the era of the UN, there was greater attainment of social justice as part of the aim of
International co-operation and cooperative actions.
• The conference recognizes the solemn obligation of ILO to further among the nations
of the world programmes which will achieve:
▪ full employment and a raise in the standard of living;
▪ the employment of workers in which they can have the satisfaction of giving the
fullest measure of their skills and attainments and make their greatest contribution
to the common well-being;
▪ facilities for training and transfer of labour for employment and settlement;
▪ policies with regard to wages and earning hours and other conditions of work
calculated to ensure a just share of the fruits of progress to all and minimum living
wage to all employed and all in need of such protection;
▪ official recognition of collective bargaining, co-operation of management and
labour;
▪ provision for child welfare and maternity protection;
▪ assurance of equality of educational and vocational opportunity;
▪ provision for adequate nutrition, housing and facilities for recreation and culture;
▪ adequate protection of life and health of all workers in all occupations and
▪ extension of social security measures to provide basic income to all in need of such
protection and comprehensive medical care.
• In this declaration, ILO emphasizes states’ social commitment to the upliftment of
working class and affirms the right of workers for decent living. While recognizing
these rights, ILO actually assures a life with human dignity which is one of the basic
human rights.

ILO’s up to date Social Security Standards Conventions

▪ Social Security (Minimum Standards) Convention, 1952 (No. 102).

19
 ▪ Employment Injury Benefits Convention, 1964 (No. 121).
▪ Invalidity, Old-Age and Survivors’ Benefits Convention, 1967 (No. 128).
▪ Medical Care and Sickness Benefit Convention, 1969 (No. 130).
▪ Employment Promotion and Protection against Unemployment Convention, 1988 (No.
168).
▪ Maternity Protection Convention, 2000 (No. 183).
▪ Equality of Treatment (Social Security) Convention, 1962 (No. 118).
▪ Maintenance of Social Security Rights Convention, 1982 (No. 157).

Major Recommendations
▪ Income Security Recommendation, 1944 (No. 67)
▪ Medical Care Recommendation, 1944 (No. 69)

Social Security (Minimum Standards) Convention, 1952 (No.102)

• Defines 9 branches of social security
▪ Medical care benefit,
▪ Sickness benefit,
▪ Unemployment benefit,
▪ Old-age benefit,
▪ Employment injury benefits,
▪ Maternity benefit,
▪ Family benefit,
▪ Invalidity benefit,
▪ Survivors’ benefit.
• Sets minimum standards for these nine branches
▪ Minimum percentage of personal coverage;
▪ Minimum level of benefits;
▪ Maximum qualifying period for the entitlement to benefits;
▪ Minimum duration of benefits.
• Is based on commonly agreed social security principles.
• Is built upon the basis that there is no right model for social security and it
reflects countries’ social and cultural values, their history, their
institutions and their level of economic development.

20
• It thus includes several flexibility clauses to allow as many countries as
possible to fulfill its provisions (e.g. ratification of 3 out of the 9 branches, coverage of
a certain percentage of worker or the population, etc.)

EMPLOYEES’ COMPENSATION ACT, 1923

• Employees’ Compensation Act, 1923 is one of the most important social security laws.

21
 • The Act’s main aim is to provide financial protection and assistance to employees and
their dependents through compensation in case of any accidental injury occurs during
the course employment.
• It is generally applicable to the cases where such incidents lead to either death or
disablement of the worker.

Object:

• The Main object of the Act is to impose legal obligation on the employers to pay
compensation to workmen involved in accidents arising out of and in the course of
employment. It is a mechanism for providing relief to victims of work-connected
injuries.

Employer’s Liability for Compensation (Section 3)

• The Act provides the liability of the employer, in case of occupational diseases or
personal injuries or the prescribed manner in which compensation has pay to the
workmen.

Dependant [Section 2(1)(d)] means any of the following relatives of a deceased employee,
namely:

(i) a widow, a minor legitimate or adopted son, an unmarried legitimate or adopted

daughter, or a widowed mother, and
(ii) if wholly dependent on the earnings of the employee at the time of his death, a son
or a daughter who has attained the age of 18 years and who is infirm; and
(iii) if wholly or in part dependent on the earnings of the employee at the time of his
death:
(a) a widower,
(b) a parent other than a widowed mother,
(c) a minor illegitimate son, an unmarried illegitimate daughter or a daughter
legitimate or illegitimate or adopted if married and a minor, or if widowed and a
minor,
(d) a minor brother or an unmarried sister, or a widowed sister if a minor,
(e) a widowed daughter-in-law,
(f) a minor child of a pre-deceased son,
(g) a minor child of a pre-deceased daughter where no parent of the child is alive or

22
 (h) a paternal grandparent, if no parent of the employee is alive.

Explanation – For the purpose of sub-clause (ii) and items (f) and (g) of sub-clause (iii)
references to a son, daughter or child include an adopted son, daughter or child respectively.

Employee [Section 2(dd)] means a person, who is –

(i) railway servant as defined in clause (34) of section 2 of the Railways Act, 1989,
(ii) (a) master, seaman or other members of the crew of a ship,
(b) captain or other member of the crew of an aircraft,
(c) driver, helper, mechanic, cleaner or any other capacity in connection with
motor vehicle,
(d) person works in abroad by a company registered in India,

(iii)person who employed as specified under Schedule II of the Act,

Employer [Section 2(e)] includes

▪ Any-body of persons whether incorporated or not,

▪ Any managing agent of an employer, and
▪ The legal representative of a deceased employer.

Wages [Section 2(1) (m)]

• Wages include any privilege or benefit which is capable of being estimated in money,
other than a travelling allowance or the value of any travelling concession or a
contribution paid by the employer to an employee towards any pension or provident
fund or a sum paid to employee to cover any special expenses entailed on him by the
nature of his employment.
• Wages include dearness allowance, free accommodation, overtime pay, etc.
• In KSRTC Bangalore v. Smt.Sundari [1982 Lab.I.C.230] the driver of a bus died in
an accident. On a claim for compensation made by widow it was held that line
allowance and night out allowance came under the privilege or benefit which is capable
of being estimated in money and can be taken into consideration in computing
compensation as part of wages.

Compensation [Section 2(1)(c)]

• “Compensation” has been defined under Section 2(1)(c) of the Act to mean
compensation as provided for by this Act.
23
 • Amount of compensation is payable in the event of an employee meeting with an
accident resulting into temporary or permanent disability or disease as stated in
Schedule II and III in terms of Section 4 of the Act, read with Schedule IV.
• Schedule II contains a list of persons engaged in different employments/ operations
specified therein who are covered by the definition of employee and entitled to
compensation e.g. a person employed for loading/unloading of materials in a factory or
ship, persons employed in work incidental or connected with manufacturing process.
• Schedule III contains a list of occupational diseases which if contracted while in
employment entitles an employee to compensation such as disease caused by lead,
mercury, etc.
• Schedule IV lays down the relevant factor (a certain figure) related to the age of the
employee at the time of death, injury or accident by which wages are multiplied to
arrive at compensation.
• Section 4A of the Act provides that compensation under Section 4 shall be paid as soon
as it falls due. Compensation becomes due on the date of death of employee and not
when Commissioner decides it (Smt. Jayamma v. Executive Engineer, P.W.D.
Madhugiri Division, 1982 Lab. I.C. Noc 61).

Managing agent [Section 2(f)] means

▪ Any person appointed or acting as the representative of another person for the purpose
of carrying on such other person’s trade or business,
▪ But does not include an individual manager subordinate to an employer.

Occupational Diseases:

• Workers employed in certain occupations are exposed to certain diseases which are
inherent in those occupations.
▪ Infections due to contamination.
▪ Infra-red radiations.
▪ Skin diseases [Chemical, Leather Processing Units].
▪ Hearing impairment caused by noise.
▪ Lung cancer caused by asbestos dust.
▪ Diseases due to effect of heat/cold in extreme hot/cold climate, etc.

Personal Injury:

24
 • The three tests for determining whether an accident arose out of employment are:
i. At the time of injury workman must have been engaged in the business of the
employer and must not be doing something for his personal benefit,
ii. That accident occurred at the place where he was performing his duties, and
iii. Injury must have resulted from some risk incidental to the duties of the service,
or inherent in the nature or condition of employment.
• Union of India v. Mrs. Noor Jahan, (1979 Lab IC 652), the High Court of Allahabad
held that the accident having taken place within the duty hours when the deceased was
proceeding to discharge his duty at the behest of his employer at the second site, the
accident must be taken to have occurred in the course of employment.
• Trustees, Port Bombay v. Yamunabai, (AIR 1952 Bom 382), the Bombay High Court
pointed out: “The expression ‘in the course of employment’ suggests the point of time,
that is no say, the injury must be caused by accident taking place in the course of the
employment, that is, during the currency of employment”.
• In the case of Indian News Chronicle v. Mrs. Lazarus, (A.I.R. 1961, Punj. 102), an
electrician who had to go frequently to a heating room from a cooling plant, contracted
pneumonia which resulted in his death. It was held that the injury caused by an accident
is not confined to physical injury and the injury in the instant case was due to his
working and going from a heating room to a cooling plant as it was his indispensable
duty.

Arising out of and in the course of employment

• The expression “in the course of employment” suggests the period of employment and
the place of work. In other words, the workman, at the time of accident must have been
employed in the performance of his duties and the accident took place at or about the
place where he was performing his duties.
• The expression “employment” is wider than the actual work or duty which the
employee has to do. It is enough if at the time of the accident the employee was in actual
employment although he may not be actually turning out the work.
• Even when the employee is resting, or having food, or taking his tea or coffee,
proceeding from the place of employment to his residence, and accident occurs, the
accident is regarded as arising out of and in the course of employment. Employment –

25
 • The word “employment” has a wider meaning than work. A man may be in course of
his employment not only when he is actually engaged in doing something in the
discharge of his duty but also when he is engaged in acts belonging to and arising out
of it.
• For the expression “accident arising out of and in the course of employment” the basic
and indispensable ingredient is unexpectedness. The second ingredient is that the injury
must be traceable within reasonable limits, to a definite time, place or occasion or cause.
The Act should be broadly and liberally constructed in order to effectuate the real
intention and purpose of the Act.
• In the case of Mackinnon Mackenzie and Co. (P.) Ltd. v. Ibrahim Mohammed
Issak, (AIR 1970 S.C. 1906), it was observed that the words arising out of employment
means that injury has resulted from risk incidental to the duties of the service which
unless engaged in the duty owing to the master, it is reasonable to believe that the
workman would not otherwise have suffered. There must be a casual relationship
between the accident and the employment. If the accident had occurred on account of a
risk which is an incident of the employment, the claim for compensation must succeed
unless of course the workman has exposed himself to do an added peril by his own
imprudence.

Doctrine of notional extension:

• The expression in the course of his employment, connotes not only actual work but also
any other engagement natural and necessary thereto, reasonably extended both as
regards work-hours and work-place.
• It refers to the time during which the employment continues
• However, this is subject to the theory of notional extension of the employer’s premises
so as to include an area which the workman passes and re-passes in going to and in
leaving the actual place of work.
• There may be some reasonable extension in both time and place and a workman may
be regarded as in the course of his employment even though he had not reached or had
left his employer’s premises.
• The doctrine of notional extension could not be placed in a straight jacket, it was merely
a matter of sound common sense as to when and where and to what extent this doctrine
could be applied.

26
 • New India Assurance Co. v. Smt. Padmavati, (2005 Lab IC 3190 AP), the deceased
was working as a cleaner of a vehicle. The accident occurred while the deceased was
bringing tiffin on the instruction of the driver when the vehicle was parked after
reaching the destination. It was held that the job undertaken by the deceased was
ancillary and incidental to his employment and has to be construed as ‘arising out of
and in the course of employment’. Thus, the dependents of the deceased were entitled
to compensation under the Act.
• Saurashtra Salt Manufacturing Co. v. Bai Valu Raja, (AIR 1958 SC 881: 1958 2
LLJ 249), the Supreme Court while discussing the scope of Section 3(1) observed that
it is now well settled that the employment of a workman does not commence until he
has reached the place of employment and does not continue when he has left the place
of employment, the journey to and from the place of employment being excluded, is
subject to the theory of notional extension of the employers premises so as to include
an area which the workman passes and repasses in going to and in leaving the actual
place of work.

Circumstances under which an employer is not liable for compensation:

i. When the injury not exceed three days,

ii. Influence of drink, wilful disobedience etc., on the part of the employee.
• However, there exceptions do not apply in cases where the accidents result in the death
or total permanent disablement of the employee.
• Arya Muni v. Union of India, (1963 I LLJ 24), a workman lost is right eye due to the
sparks. The employer displayed the notice of usage of goggles for such work in English.
The employer claimed that there were instructions to use goggles but the worker did
not use them.
• However, it has been held that since the worker did not know English, it cannot be said
that he understood the message. Also, while the worker was aware of goggles that did
not mean that he understood that they were mandatory. The supervisor also did not tell
him so. Thus, the employer was liable to pay compensation.
• Under Section 3(5) of the Employees’ Compensation Act, 1923, the workman or his
dependents have to elect between filing a civil suit in Civil Court or claim before

27
 Workmen's Compensation Commissioner under the Act. Certainly, he cannot seek both
remedies at one time since only one of the remedies can be sought.
• New India Insurance Co. v. Ponnamma Kurien and Others, (Lab IC 1995 Kerala
588), the Court held that rejection of a claim under the Motor Vehicles Act or any other
law does not debar the claimant to invoke the benefits secured by the Employees’
Compensation Act.

Computation or Determination of Compensation:

• Section 2(c) – Compensation – means compensation as provided for by this Act.

• Section 2(d)– Dependant – means any of the following relatives of deceased
employee, namely-
(i) a widow, a minor (legitimate or adopted) son, an unmarried (legitimate or
adopted) daughter or a widowed mother, and
(ii) wholly dependent on the earning of the employee at the time of his death, a son
or a daughter who has attained the age of 18 years, (includes adopted child also)
and
(iii) wholly or in part dependent on the earning of the employee at the time of his
death,
▪ a widower,
▪ a parent other than a widowed mother,
▪ a minor illegitimate son, an unmarried illegitimate daughter or a daughter
(legitimate or illegitimate or adopted) if married and a minor or if widowed
and a minor,
▪ a minor brother or an unmarried sister or a widowed sister if a minor,
▪ a widowed daughter-in-law,
▪ a minor child of a pre-deceased son, (includes adopted child also)
▪ a minor child of a pre-deceased daughter where no parent of the child is
alive, (includes adopted child also) or
▪ a paternal grandparent if no parent of the employee is alive.
• In Ravuri kotayya v. Dosari Ngavardanama (AIR 1962 AP42), the Court held that
the widow of a deceased workman would not be disentitled to compensation on her
remarriage. Subsequent event would not affect the claim of the dependent to the
compensation.

28
 • In Periannapillai v. Kuppa Goundan (AIR 1954 Mad.804), it has been held that it is
necessary for an applicant who is the father of a deceased when he claims
compensation, to establish that he is dependent either wholly or in part on the earnings
of his deceased son.
• Where on the facts it is conceded by the conduct of the parties that he is so dependent,
he is not disentitled from claiming compensation even though the fact is denied on the
counter statement before the Commissioner and no positive proof is let in.
• Section 4 deals with the amount of compensation.
▪ The amount of compensation allowable under the Act has been fixed by the Statute
itself thereby leaving no option to the Commissioner but to allow the compensation
so fixed once he hold the employee or his heirs entitled to claim compensation.
▪ It depends upon the nature of the injury, average monthly wages and age of the
workmen and the same is determined on the following basis:

Death resulting from injury: [Section 4(1)(a)]

• 50% of Monthly wages (x) Relevant factor, (or)

• Rs.1,20,000/- whichever is higher.

Permanent Total Disablement resulting from injury: [Section 4(1)(b)]

• 60% of Monthly wages (x) Relevant factor, (or)

• Rs. 1,40,000/- whichever is higher.

Partial Disablement

29
 • Section 2(g) defines “Partial Disablement” – disablement of temporary nature and
reduced the capacity of earning during the disablement.
• In the case of Sukhai v. Hukam Chand Jute Mills Ltd., A.I.R. 1957 Cal. 601, it was
observed: “If a workman suffers as a result of an injury from a physical defect which
does not in fact reduce his capacity to work but at the same time makes his labour
unsaleable in any market reasonably accessible to him, there will be either total
incapacity for work when no work is available to him at all or there will be a partial
incapacity when such defect makes his labour saleable for less than it would otherwise
fetch.
• The capacity of a workman may remain quite unimpaired, but at the same time his
eligibility as an employee may be diminished or lost if such a result ensure by the reason
of the results of an accident, although the accident has not really reduced the capacity
of the workman to work.
• He can establish a right to compensation, provided he proves by satisfactory evidence
that he has applied to a reasonable number of likely employers for employment, but had
been turned away on account of the results of the accident visible on his person.”
• In General Manager, G.I.P. Rly. v. Shankar, A.I.R. 1950 Nag. 307 the court held
that if after the accident a worker has become disabled, and cannot do a particular job
but the employer offers him another kind of job, the worker is entitled to compensation
for partial disablement.
• In Raghuraj Singh v. Eastern Railway (1967) LLJ 68 (Alld.) it has been held that in
a welfare legislation if any particular provision is capable of two interpretations, the
one that is more favorable to the persons for whose benefit the legislation has been
made should be adopted. There can be no doubt that the loss one vision of eye comes
within the purview of total disablement.

Permanent Partial Disablement resulting from injury: [Section 4(1)(c)]

• Injury specified in Part II of Schedule I, such amount is payable.

• In the case of an injury not specified in Schedule I, amount payable in permanent total
disablement is directly proportionate to amount payable at permanent partial
disablement.

Temporary Disablement (Total or Partial) resulting from injury: [Section 4(1)(d)]

30
 • Half-monthly payment of the sum equivalent to 25% of monthly wages of the workman,
to be paid in the manner prescribed.

Compensation to be paid when due and Penalty for default: [Section 4A]

• Where an employer is in default in paying the compensation due under this Act, within
one month from the date if fell due, the Commissioner shall:
i. Direct that the employer in addition to the amount of arrears, pay simple interest
there on at the rate of 12% per annum or on such higher rates.
ii. Commissioner has the power under the Act to impose penalty and the interest on
the cleared amount as per the provision of the act.

Method of Calculating wages: (Section 5)

• The basis for the calculation of compensation is the monthly wage system. It means the
amount of wages deemed to be payable for a month.
• Batta does not amount to wages for computing compensation. It is paid to workman per
day to cover special expenses incurred by him due to the nature of his work.
• When the employer has been giving service to the employer during a continuous period
of not less than twelve months preceding the accident, and when the employer is liable
to pay compensation, the employee will be liable one-twelfth of the total wages.
• The employer is required to pay the compensation which is due for payment to
employees in the last twelve months of that period.

Review: (Section 6)

• Any half monthly payment can be reviewed by the commissioner under this act if there
is an agreement between the parties or if there is an order given by the commissioner.
• A Certificate of a qualified medical practitioner will be accompanied that there is a
change in the condition of the employee subject to the rules and regulations under the
Act.
• Any half monthly payment may be reviewed, can be continued, increased, decreased or
ended under the act or if the accident is found which resulted in permanent disablement.
• Such an employee may get less amount because he had already received by way of half
monthly payments.

Commutation of Payments: (Section 7)

31
 • Any right to receive half-monthly payment agreement between the parties is
commutation of payments. If the parties do not agree and the payment continues for not
less than six months then on the application of either party, the Commissioner will
redeem the payment of a lump sum amount which was agreed by the parties.

Distribution of Compensation (Section-8)

Section 8 lays down the following rules regarding the distribution of compensation:

• Compensation for death and lump sum payment due to a woman or to a person under a
legal disability must be deposited with the Commissioner.
• But in the case of a deceased workman, an employer may make to any dependent
advances on account of compensation not exceeding an aggregate of one hundred
rupees. So much of such aggregate as does not exceed the compensation payable to that
dependent shall be deducted by the Commissioner from such compensation and repaid
to the employer.
• Any other sum amounting to not less than Rs.10 which is payable as compensation may
be deposited with the Commissioner on behalf of the person entitled thereto.
• The receipt of the Commissioner shall be sufficient discharging respect of any
compensation deposited with him.
• After the deposit of the compensation, the Commissioner shall deduct there from the
actual cost of the- workman's funeral expenses to an amount not exceeding Rs. 50 and
pay the same to the person by whom the expenses were incurred.

• Pasupati Dutt v. Kelvin Jute Mills, (AIR 1937 Cal. 495), on the death of workman
through some accident arising in the course of his employment, the right to
compensation, payable by the employer under the Employees’ Compensation Act vests
in his dependents actually existing at the time of his death, and if such dependent died
before any claim to such compensation is made or investigated, the right passed on to
his heirs or legal representatives as they are included in the word “dependent” in Section
8 of the Act.

Notice and Claim: (Section 10)

• To claim the compensation:

32
 ▪ The claimant shall give notice of accident to the employer or by entering in the
notice book within the reasonable period.
▪ Every such notice shall give the name and address of the person injured, the cause
of the injury and the date on which the accident happened and
▪ Submit the claim application to the commissioner within two years from the date of
accident.
▪ In case of occupational disease, the accident is deemed to have occurred on the first
day of disease.
▪ Defect if any in the notice or not giving notice or delayed application will not bar
the claim for compensation.

Fatal Accident (Section 10A):

• It provides that where a Commissioner receives information that a workman has died
as a result of an accident arising out of and in the course of his employment, he may
send by registered post a notice to the workman’s employer requiring him to submit,
within 30 days of the service of notice, a statement in the prescribed form, giving
circumstances attending the death of the workman, and indicating whether in the
opinion of the employer, he is or is not liable to deposit compensation on account of
death.
• If the employer is of opinion that he is liable, he shall make the deposit within 30 days
of the service of the notice.
• If he is of opinion that he is not liable, he must state his grounds. In the latter case, the
Commissioner, after such enquiry as he may think fit inform any of the dependents of
the deceased workman that it is open to them to prefer a claim and may give them such
further information as he may think fit.
• Section 10B provides that where by any law for the time being in force, notice is
required to be given to any authority by or on behalf of an employer, at any accident
resulting in death or serious bodily injury, the person required to give the notice shall
also send a report to the Commissioner. The report may be sent alternatively to any
other authority prescribed by the State Government.
• The State Government may extend the scope of the provision requiring reports of fatal
accidents to any class of premises. But Section 10B does not apply to factories to which
the Employees’ State Insurance Act applies.

33
The Orient Fire and General Insurance Co. Ltd (AIR 1972 AP 222)

• It has been held that Section10-A lays down the procedure to be followed where the
Employees’ Compensation Commissioner receives information from any other source
that an employee had died as a result of an accident arising out of and in the course of
his employment.
• It lays down procedure in cases where the employer disclaims liability for
compensation. It has been observed that if the employer disclaims his liability for
compensation Section10-A provides for enquiry by the Commissioner.

Medical Examination (Section 11):

• Qualified medical practitioner [Section 2(i)] – any person registered under any
Central Act, Provincial Act, or an Act of the Legislature of a State providing for the
maintenance of a register of medical practitioners, or, in any area where no such last-
mentioned Acts is in force, any person declared by the State Government by notification
in the Official Gazette, to be qualified medical practitioner for the purpose of this Act.
• After a workman gives notice of an accident, the employer may, within three days of
the service of the notice, offer to have him examined free of charge by a qualified
medical practitioner.
• Any workman in receipt of half-monthly payments may also be required to submit for
examination from time to time.
• The Examination must be in accordance with the rules framed for the purpose.
• If the workman refuses, without sufficient cause, to submit to the examination or if he
leaves the vicinity of the place in which he was employed, his right to receive
compensation shall be suspended during the continuance of the refusal or until his
return to the vicinity and examination.
• In Case the workman, who refused medical examination, subsequently dies, the
Commissioner has discretionary powers of direct payment of compensation to the
dependents of the deceased workman.
• The Condition of an injured workman may be aggravated by refusal to submit to.
medical examination or refusal to follow the instructions of the medical examiner or
failure to be attended by or follow the instructions of a qualified medical practitioner.
• In such a case he would get compensation, not for the aggravated injury, but for what
the injury would have been had he been properly treated.

34
Employment by Contractors (Section 12):

• When an employer engages contractors who engage workmen, any workman injured
may recover compensation from the employer if the following conditions are satisfied:

(a) the contractor is engaged to do a work, which is part of the trade or business of the
principal,

(b) the engagement is in the course of or for the purposes of his trade or business, and

(c) the accident occurred in or about the vicinity of the employer’s premises.

• The Workman may also proceed against the contractor. So, he has alternative remedies.
When the employer pays compensation, he is entitled to be indemnified by the
contractor.

Executive Engineer, P.W.D v. Subhiah Backier and another (1983 II LLJ 320)

• It was held by the High Court of Madras that merely because Section12 (2) of the Act
contemplates the contractor giving an indemnity to the principal employer, in case the
principal employer is made liable in respect of compensation it cannot be said that the
Additional Commissioner cannot pass an award against the principal employer.
• If the argument of the principal employer is accepted, then in no case a direct award
can be passed against the principal employer. That will run counter to Section 12 of the
Act.
• When the legislature has specifically provided that an award for compensation is to be
passed directly against the principal employer and the principal employer is given a
right of indemnification as against the contractor of the Additional Commissioner is
entitled to pass an award granting compensation either in full or in part directly against
the principal employer on condition that the principal employer will get indemnified by
the contractor.

K. Koodalingam v. Supdt. Engineer, PWD (1995 I LLJ 334 Ker)

• In this case P.W.D. engaged contractor for construction of canal who engaged workmen
to do the work. The workmen died in landslide while at work.
• It was held that P.W.D. is liable to pay compensation as principal employer and is
entitled to be indemnified by the contractor in terms of Section 12 of the Act.

35
Remedies of employer against stranger (Section 13):

• Where a workman has recovered compensation in respect of any injury caused under
circumstances creating a legal liability of some person over than the person by whom
the compensation was paid and any person who has been called on to pay an indemnity
under Section 12 shall be indemnified by the Person so liable to pay damages as
aforesaid.

Insolvency of Employer (Section 14):

• The liability to pay workmen’s compensation can be insured against. If an employer

who has entered into a contract of insurance for this purpose, becomes insolvent or
enters into a scheme of composition or arrangement or (being a company) is wound up,
the rights or the employer as against the insurer shall be transferred to and vest in. the
workman.
• The liability to pay compensation to a workman is to be treated as a preferred debt
under insolvency and winding up. For this purpose, the liability to pay half-monthly
payment is to be taken as equivalent to the lump sum payment into which it can be
commuted.
• This section does not apply where a company is wound up voluntarily merely for the
purpose of reconstruction or amalgamation with another company.

United India Insurance Company v. Gangadharan Nair (1987 I LLJ 448 Ker)

• It has been held that Section 14 was understood as excluding the insurer from liability
to employees under the Workmen’s Compensation Act excepting a case where the
employer became insolvent or made or composed the scheme for arrangement with his
creditors or winding up proceedings were commenced in cases where the employer was
a company.
• Section 14 is only an enabling provision and it cannot operate as a prohibition against
the insurer being proceeded against before the Workman’s Compensation
Commissioner. Section 101 of the Motor Vehicles Act contains similar provision and
it does not enable the insurer to disclaim liability.

Divisional Manger, Oriental Insurance Co. Ltd v. Zareena Bee (1997 II LLJ 1133)

• It has been held that in view of Section 14 of the Act wherein the liability of insurer
comes into play only when the employer becomes insolvent and not otherwise.
36
 • Section 4-A of the Act itself spells out the liability for the consequence of non-
compliance of the award made as against the employer.
• The implication of either Section 4-A or Section 14 of the Act cannot rope in the insurer
to absolute liability at all events.

Transfer of Assets by Employer (Section 14A):

• Where an employer transfers his assets before any amount due in respect of any
compensation, the liability wherefore accrued before the date of the transfer, has been
paid, such amount shall, notwithstanding anything contained in any other law for the
time being in force, be a first charge on that part of the assets so transferred as consists
of immovable property.

Master and Seamen (Section 15):

• So far as masters and seamen are con-cerned, the provisions of the Act apply with
certain modifications laid down in Section 15.

Returns (Section 16):

• The State Government may, by notification in the official Gazette, direct employers to
submit returns regarding compensation paid by them and particulars relating to the
compensation.

Contracting Out (Section 17):

• It provides that any contract by which a worker relinquishes his right to receive
compensation for in-jury is null and void in so far as it purports to remove or reduce
the liability of any person to pay compensation under this Act.

Penalties (Section 18A):

• It provides for penalties for failure to per-form the duties prescribed under the Act, e.g.,
failure to send returns or maintain notice books etc.

Bar to Civil Suits (Section 19(2)):

37
 • A Civil Court has no jurisdiction to settle, decide or deal with any question which,
because of the provisions of the Act, is required to be decided or dealt with by the
Commissioner or to enforce any liability under this Act.

Commissioner:

Commissioner [Section 2(b)] – means a commissioner appointed under Section 20 of the Act.

Appointment of Commissioner (Section 20):

• The State Government may by notification in the Official Gazette appoint

Commissioners for the purpose of deciding any matter referred to him for decision
under this Act.
• Every Commissioner shall be deemed to be a public servant within the meaning of the
Indian Penal Code, 1860.

Form of application:

• An application to the Commissioner shall be made in the prescribed form according to

the rules, and accompanied by a prescribed fee. The following particulars must be given
namely:
i. Concise statement of the circumstances and the relief claimed,
ii. In case of claim for compensation against an employer,
▪ The date of service of notice of accident.
▪ With its due time of notice and the reason why notice was not given.
i. The names and addresses of the parties, and
ii. A concise statement of the agreement.
• According to Section 22(3), if the applicant is illiterate or for any reason is unable to
furnish the required information, the application, if the applicant so desires, shall be
prepared under the direction of the Commissioner.

Gurnam v. Commissioner, Workmen’s Compensation and others (1998 I LLJ 987 Punjab
and Haryana)

• It has been held that in view of expression contained in Rule 32 of the Workmen’s
Compensation Rules, 1924, the commissioner cannot modify or amend order though he
can correct the clerical and arithmetical mistakes arising out of the accidental slip or
omission. He cannot reduce the compensation awarded.

38
Ram Niwas Khandelwal v. Mst. Mariam (AIR 1951 Pat.260)

• It was held that Section 19 of the Workmen’s Compensation Act does not altogether
bar the consideration of the question as to whether a person injured is or is not a
workman.
• On the language of Section 19, where the point is a moot point and where the evidence
might indicate that the employee was not a workman it cannot be said that the
Commissioner would have no jurisdiction to decide the point before deciding about the
compensation payable.

Powers and Procedure of Commissioners (Section 23):

• The Commissioner shall have all the powers of a Civil Court under the Code of Civil
Procedure, 1908.
• The Commissioner can take Oath and enforce the attendance of witnesses and compel
the production of documents and material objects.
• Thus, the Commissioner under the Act shall be deemed to be a Civil Court.

Gian Chand v. Mani Karan [1990 (1) LLJ 565]

• The Court held that in absence of the workman’s counsel, the Commissioner should,
ordinarily, adjourn the case unless the adjournment in likely to result in grave
miscarriage of justice or is occasioned on account of utter lack of bona fides or diligence
on the part of the workman.

Jeevabhai R. Tandel v. Dockendaie Shipping [1996 (2) Cur LR 639]

• The Court held that the Commissioner has jurisdiction for appointment and issue of
commission for recoding evidence of a workman who is injured and practically unable
to come to the Court of Commissioner.

Appearance of Parties (Section 24):

• Appearance may be done on behalf of applicant by a legal practitioner or an official of

Insurance Company, or an authorized person of a registered Trade Union or by an
Inspector appointed.

Method of Recording evidence (Section 25):

39
 • The Commissioner shall make a brief memorandum of the substance of the evidence of
every witness as the examination of the witness proceeds, and such memorandum shall
be written and signed by the Commissioner with his own hand and shall form a part of
the record.

Appeals:

An appeal lies to the High Court from the following orders of a Commissioner:

• An order awarding as compensation a lump sum whether by way of redemption of a

half-monthly payment or an order awarding interest or penalty under Section 4A.
• An order refusing the redemption of a half-monthly payment.
• An order for the distribution of compensation among the dependents of a deceased
workman, or disallowing any denial of person alleging himself to be such dependent.
• An order of any claim for the amount of indemnity under Section 12(2)
• An order refusing to register a memorandum of agreement or registering the same or
providing for the registration of the same subject to conditions.

Other provisions regarding appeal:

• No appeal shall lie against any order unless a substantial question of law is involved in
the appeal and, in the case of an order other than an order such as is referred to clause
(b), unless the amount is dispute in the appeal is not less than Rs.300.
• No appeal lies in any case in which the parties have agreed to abide by the decision of
the Commissioner, or in which the Order of the Commissioner gives effect to an
agreement come to by the parties.
• No appeal by an employer lies under the memorandum of appeal is accompanied by a
certificate by the Commissioner to the effect that the applicant has deposited with him
the amount payable under the order appealed against him.
• The period of limitation for an appeal under this Section shall be 60 days and the
provisions of Section 5 of the Indian Limitation Act, 1908, shall be applicable to
appeals under this Section.

Om Prakash Batish v. Ranjit alias Ranbir Kaur and others (2009 1 SCC L&S 136)

40
 • It has been held that Section 30 of the Act provide that an appeal shall lie to the High
Court on substantial question of law. A substantial question of law will carry the same
meaning as is commonly understood.
• Distinction sought to be made that substantial question of law for the purpose of a first
appeal and one for second appeal would be different cannot be accepted. A right to
appeal under the Act is provided, both to the management as also the workman.
• It is difficult to hold that whereas for the workman the High Court shall exercise a wider
jurisdiction would be limited.
• The High Court unfortunately proceeded on the basis that appreciation of evidence
would also give rise to a substantial question of law.
• It was clarified that in a proceeding initiated under the Act, the provisions of the Civil
Procedure Code or of the Evidence Act are not applicable.
• The Commissioner could lay down his own procedure, he could, for the purpose of
arriving at the truth, rely upon such documents which were produced before it.

Recovery of the amount awarded (Section 31):

• Any amount payable under the Act, whether under an agreement or otherwise, shall be
recovered as an arrear of land revenue.

EMPLOYEES’ STATE INSURANCE ACT, 1948

• The Employees’ State Insurance Act, 1948 is a piece of social welfare legislation. It is
enacted primarily with the object of providing certain benefits to employees in case of
sickness, maternity and employment injury and also to make incidental provisions.
• Under these enacting provisions, the Act has been extended by many State
Governments to shops, hotels, restaurants, cinemas, including preview theatres,
newspaper establishments, road transport undertakings, etc., employing 20 or more
persons.
• The Act tries to attain the goal of socio-economic justice enshrined in the Directive
Principles of State Policy under Part IV of the Constitution of India.
• According to Articles 41, 42 and 43 the State shall make effective provision for
securing, the right to work, to education and public assistance in cases of
unemployment, old age, sickness and disablement.

41
Object and Scope of the Act:

• The object of the ESI Act is to provide for certain benefits to employees in cases of
sickness, maternity and employment injury and to make provisions for certain other
matter in relation thereto as the preamble to the Act reflects.
• The main object of the Act is to develop a scheme for the socio-economic welfare of
the employees.
• According to the proviso to sub-section (5) of Section 1 where the provisions of the Act
have been brought into force in any part of a State, the said provisions shall stand
extended to any such establishment or class of establishment within that part, if the
provisions have already been extended to similar establishment or class of
establishments in another part of that State.
• It may be noted that a factory or an establishment to which the Act applies shall continue
to be governed by this Act even if the number of persons employed therein at any time
falls below the limit specified by or under the Act or the manufacturing process therein
ceases to be carried on with the aid of power. [Section 1(6)]
• The Coverage under the Act is at present restricted to employees drawing wages not
exceeding `Rs.15, 000 per month.
• Transport Corporation of India v. ESI Corporation (2000 SCC L&S 121), the
Supreme Court observed that the ESI Act is a beneficial piece of legislation enacted
with a view to ensuring social welfare and for providing safe insurance cover to
employees who were likely to suffer from various physical illnesses during the course
of their employment.
• Whirlpool India Ltd. v. ESI Corporation (2000 SCC L&S 326) the Supreme Court
held that the ESI Act is a social legislation to provide benefits to employees.

42
Definitions

• “Dependent” under Section 2(6A) of the Act (as amended by the Employees’ State
Insurance (Amendment) Act, 2010) means any of the following relatives of a deceased
insured person namely:
(i) a widow, a legitimate or adopted son who has not attained the age of twenty-five
years, an unmarried legitimate or adopted daughter,
(ia) a widowed mother,
(ii) if wholly dependent on the earnings of the insured person at the time of his death, a
legitimate or adopted son or daughter who has attained the age of 25 years and is infirm;
(iii) if wholly or in part dependent on the earnings of the insured person at the time his
death:
(a) a parent other than a widowed mother,
(b) a minor illegitimate son, an unmarried illegitimate daughter or a daughter legitimate
or adopted or illegitimate if married and minor or if widowed and a minor,
(c) a minor brother or an unmarried sister or a widowed sister if a minor,
(d) a widowed daughter-in-law,
(e) a minor child of a pre-deceased son,

43
 (f) a minor child of a pre-deceased daughter where no parent of the child is alive or,
(g) a paternal grand parent if no parent of the insured person is alive.

• “Employee” according to Section 2(9) as amended by the Employees’ State Insurance

(Amendment) Act, 2010 means any person employed for wages in connection with the
work of a factory or establishment to which this Act applies and:
(i) who is directly employed by the principal employer on any work of, or incidental or
preliminary to or connected with the work of the factory or establishment, whether such
work is done by employee in the factory or establishment; or elsewhere, or
(ii) who is employed by or through a immediate employer on the premises of the factory
or establishment or under the supervision of the principal employer or his agent, on
work which is ordinarily part of the work of the factory or establishment or which is
preliminary to the work carried on in or incidental to the purpose of the factory or
establishment; or
(iii) whose services are temporarily lent or let on hire to the principal employer by the
person with whom the person, whose services are so lent or let on hire, has entered into
a contract of service; and includes any person employed for wages on any work
connected with the administration of the factory or establishment or any part,
department or branch thereof, or with the purchase of raw materials of, or the
distribution or sale of the product of the factory or establishment; or any person engaged
as an apprentice, not being an apprentice engaged under Apprentices Act, 1961 and
includes such person engaged as apprentice whose training period is extended to any
length of time, but does not include:
(a) any member of the Indian Naval, Military or Air Forces; or
(b) any person so employed whose wages (excluding remuneration for overtime
work) exceed such wages as may be prescribed by the Central Government.
• Provided that an employee whose wages (excluding remuneration for overtime work)
exceed such wages as may be prescribed by the Central Government at any time after
(and not before) the beginning of the contribution period shall continue to be an
employee until the end of that period.
• The Central Government has since prescribed the wage limit for coverage of an
employee under Section 2(9) of the Act as Rs.21, 000 per month.
• Further, it is provided that an employee whose wages (excluding remuneration for
overtime work) exceed Rs.21,000/- a month at any time after and not before the

44
 beginning of the contribution period, shall continue to be an employee until the end of
the period.
• In the case of Royal Talkies Hyderabad v. E.S.I.C., AIR 1978 SC 1476, there was a
canteen and cycle stand run by private contractors in a theatre premises. On the question
of whether the theatre owner will be liable as principal employer for the payment of
E.S.I. contributions, the Supreme Court held that the two operations namely keeping a
cycle stand and running a canteen are incidental or adjuncts to the primary purpose of
the theatre and the workers engaged therein are covered by the definition of employee
as given in E.S.I. Act. The Supreme Court observed that the reach and range of Section
2(9) is apparently wide and deliberately transcends pure contractual relationship.
• “Principal Employer” means the following:
(i) in a factory, owner or occupier of the factory and includes the managing agent of
such owner or occupier,
the legal representative of a deceased owner or occupier and where a person has been
named as the manager of the factory under the Factories Act, 1948, the person so
named;
(ii) in any establishment under the control of any department of any Government in
India, the authority appointed by such Government in this behalf or where no authority
is so appointed the head of the Department.
(iii) in any other establishment, any person responsible for the supervision and control
of the establishment. [Section 2(17)]
• “Factory” as amended by the Employees’ State Insurance (Amendment) Act, 2010
means any premises including the precincts thereof whereon ten or more persons are
employed or were employed on any day of the preceding twelve months, and in any
part of which a manufacturing process is being carried on or is ordinarily so carried on,
but does not including a mine subject to the operation of the Mines Act, 1952 or a
railway running shed.
• It may be noted that the terms manufacturing process, occupier and power, shall have
the meaning assigned to them in the Factories Act, 1948. [Section 2(12)]
• “Immediate Employer” means a person, in relation to employees employed by or
through him, who has undertaken the execution on the premises of a factory or an
establishment to which this Act applies or under the supervision of principal employer
or his agent, of the whole or any part of any work which is ordinarily part of the work

45
 of the factory or establishment of the principal employer or is preliminary to the work
carried on, in or incidental to the purpose of any such factory or establishment, and
includes a person by whom the services of an employee who has entered into a contract
of service with him are temporarily lent or let on hire to the principal employer and
includes a contractor. [Section 2(13A)]
• It would not be necessary that the work undertaken by immediate employer should be
in the premises where the factory of principal employer is situated.

Employees’ State Insurance Corporation:

• Section 2(6) – the term “Corporation” under the Act refers to the Employees’ State
Insurance Corporation.
• Section 3 – Central Government has to establish the Corporation as per given
provisions.
• The Employees State Insurance Corporation is a social security organization that
provides various types of benefits to employees based on their requirements.
• It is basically a body corporate that has features like perpetual succession.
• It also has a common seal like other commercial body corporates in India.
• The Corporation consists of members representing the Governments at the Centre and
States, the Parliament, Medical Council, employees and employers.
• The main function of this Corporation is to implement provisions of the ESI Act and
carry out its duties.
• It is the highest policy making and decision taking authority under the ESI Act and
oversees the functioning of the ESI Scheme under the Act.
• It has to pay compensation to employees, regulate employers, frame rules and budgets
for contribution, etc.

Constitution of the Corporation:

• The ESI Corporation is an apex body under the Employees’ State Insurance Act.
• According to Section 4, apart from the Director General, the Corporation shall consist
of the following member. They are:
▪ Chairman to be nominated by the Central Government.
▪ Vice-Chairman to be nominated by the Central Government.
▪ Not more than 5 persons nominated by the Central Government.

46
 ▪ One person from each State nominated by the State Government.
▪ One from Union Territories nominated by Central Government.
▪ Five persons from employer’s side nominated by Central Government.
▪ Five representatives of Organization nominated by Central Government.
▪ Two persons representing medical profession.
▪ Two Members of Parliament representing Lok Sabha.
▪ One Member of Parliament representing Rajya Sabha.
▪ One Director-General of the Corporation ex-officio.

Tenure of the Members: (Section-5)

• Tenure of Members of clause (a) to (e) of Section 4 is determined by the Governments

nominating them as members of office.
• Terms of remaining members shall be for four years from the date on which they are
appointed or elected by notification.

Powers of the Corporation:

• Power to promote measures for health and welfare of insured persons and for the
rehabilitation and re-employment.
• Power to appoint staff members and officers for carrying out its business effectively. It
may bestow provident fund, gratuity and other similar benefits on its staff(Section 17).
• Power to purchase and sell movable as well as immovable properties. It can even raise
loans and invest its money with the Central Government’s sanction.(Section 29)
• Power to determine special contribution.(Section 48-A)
• Power to impose damages. (Section 85-B)
• Power to make regulations (Section 97)
• E.S.I. Corporation v. Balaji Weaving Mills (1975 Lab IC 134 Mad.), the Madras
High Court held that whatever regulations are to be made by resort to Section 97 of the
Act can only be made by the E.S.I. Corporation and not by the Director General. If the
Director General wishes to exercise any of the powers of the Corporation under the Act,
he can do so only on being delegated by express authority from the Corporation.

Duties of the Corporation:

• The Corporation performs many important duties under this Act. Most of these duties
are in the nature of compliances relating to its functioning and decisions.

47
 • Every year the Corporation has to make a budget of its probable income and
expenditure.
• It has to submit the report to the Central Government for its approval.
• It has to maintain accounts of its incomes and expenses in the format that the Central
Government prescribes.
• Submission of annual reports of its activities to the Central Government.
• It has to appoint a valuer to value its assets and liabilities every three years.

STANDING COMMITTEE:

• It acts as an executive arm of the ESI Corporation.

• It administers the affairs of the ESI Corporation subject to general superintendence and
control of the Corporation.
• It exercises any of the powers and performs any of the functions of the Corporation.

Composition of the Committee: (Section 8)

The Standing Committee consists of the following members:

• A Chairman, appointed by the Central Government,

• Three members of the Corporation appointed by the Central Government,
• Three members of the Corporation representing such three State Governments thereon
as the Central government may, by notification Gazette, specify from time to time,
• Eight members elected by the Corporation as follows:
(i) Three members from among the members of the Corporation representing
employers;
(ii) Three members from among the members of the Corporation representing
employees;
(iii) One member from among the members of the Corporation representing
medical profession; and
(iv) One member from among the members of the Corporation elected by
Parliament;
(v) The Director General of the Corporation, ex officio.

Term of Office: (Section 9)

48
 • The Chairman and the representative of the Central and State Governments are to hold
office during the pleasure of the Central Government.
• The other 8 elected member are to hold office for a period of two years from the date
on which their election is notified.
• But any member of the Committee shall continue to hold office even after the expiry of
his tenure of two years until the election of his successor is notified.

Powers of the Standing Committee: (Section 18)

• It administers the affairs of the ESI Corporation and may exercise any of the powers
and perform any of the functions of the Corporation.
• It shall submit for the consideration and decision of the Corporation all such cases and
matters as may be specified in the regulations made in this behalf.
• It may, at its discretion, submit any other case or matter for the decision of the
Corporation.

MEDICAL BENEFIT COUNCIL: (Section10)

• It is an advisory body on matters related to the administration of medical benefit under

the ESI Scheme.

Composition of the Council:

The Council is constituted by the Central Government for a specific term and consists of:

▪ Director General, Central Health Services (ex-officio Chairman);

▪ Deputy Director General/Addl. Director General, Central Health Services;
▪ One member each representing respective State Governments;
▪ Three members each representing employees, employers and the medical profession;
▪ Medical Commissioner, ESI Corporation (ex-officio member).

Powers and Duties of the Council: (Section 22)

▪ The ESI Act empowers the Medical Benefit Council to advise the Corporation on
matters related to developments and improvements in the medical service delivery
system.

The Medical Benefit Council shall:

49
 a) Advise the Corporation and the Standing Committee on matters relating to the
administration of medical benefit the certification for purposes of the grant of benefits
and other connected matters;
b) Have such powers and duties of investigation as may be prescribed in relation to
complaints against medical practitioners in connection with medical treatment and
attendance; and
c) Perform such other duties in connection with medical treatment and attendance as may
be specified in the regulations.

EMPLOYEES’ STATE INSURANCE FUND: [Section 26(1)]

• All contributions paid under ESI Act and all other moneys received on behalf of the
Corporation shall be paid into a fund.
• It is administered by the Corporation for the purpose of ESI Act.
• The Corporation may accept grants, donations and gifts from the Central or any State
Government, local authority or any individual or body whether incorporated or not for
all or any of the purposes of ESI Act.

50
 • All moneys accruing or payable to the said fund shall be paid into the Reserve Bank of
India or such other bank as may be approved by the Central Government to the credit
on an account styled the account of the ESI Fund.
• Such account shall be operated on by such officers as may be authorized by the Standing
Committee with the approval of the Corporation.
• Bharagath Engineering v. Ranganayaki (2003 2 SCC 138), the Court held that the
contributions to a fund under Section 26 for disbursal of benefits in case of accidents,
disablement, sickness, maternity, etc. The contribution required to be made is not paid
back even if employee does not avail any benefit.
• Whirlpool of India Ltd. v. Employees’ State Insurance Corporation (2000 2 MLJ
132 SC), the Supreme Court held that production incentive paid to workers by
whirlpool at the rates specified besides normal wages under a ‘production incentive
scheme’ in this case does not become wages to attract contribution towards Employees’
State Insurance Fund.

Purposes for which the fund may be utilized: (Section 28)

• Payment of benefits and provision of medical treatment and attendance to insured

persons and their families.
• To meet the charges and costs in connection with medical treatment and attendance to
insured persons and their families.
• Payment of fee and allowances to members of the Corporation, Standing Committee,
Medical Benefit Council, Regional Board, Local Committee and Regional and Local
Benefits Councils.
• Payment of salaries and allowances, gratuities, compensatory allowances, bonus,
contribution to Provident Fund and other benefit funds to officers and servants of the
Corporation.
• Meeting the expenditure in respect of officers and other services set up for the purposes
of giving effect to the provisions of the Act.
• Establishment and maintenance of hospitals, dispensaries and other institutions and the
provisions of medical and other ancillary services for the benefit of insured persons and
their families.

51
 • Payment of contribution to any State Government, legal authority, private body or
individual towards the cost of medical treatment and assistance to insured persons and
to their families.
• To meet the cost including all expenses of auditing accounts of the Corporation.
• To meet the cost including all expenses of employees’ insurance Court set up under the
Act.
• Payment of any sums under any contract entered into for the purposes of this Act by
the Corporation, Standing Committee or an officer duly authorized by them.
• Payment of any sums under any decree, order or award of any Court or Tribunal against
the Corporation or officer or servant for any act done in the execution of his duty or
under the compromise or settlement of any suit or claim instituted or more against the
Corporation.
• To meet the cost and other charges instituting or defending any civil or criminal
proceedings arising out of or under the Act.
• To meet the expenditure within the limit prescribed for the improvement of health and
welfare of the insured persons and for the rehabilitation, reemployment of insured
persons and
• Such other expenses as may be authorized by the Corporation with previous approval
of the Central Government.

CONTRIBUTION:

• Contribution is the amount payable to the Corporation by the Principal employer in

respect of an employee and comprises the amount payable by the employee and the
employer. (Section 2(4)).
• The scheme is primarily funded by contribution raised from insured employees and
their employers in the implemented areas as a small but specified percentage of wages
payable to such employees.
• The Contribution payable to the Corporation in respect of an employee shall comprise
of employer’s contribution and employee’s contribution at a specified rate.
• The Rates are revised from time to time. The rate of contribution as of now is:
▪ Employees’ contribution – 0.75% of the wages
▪ Employers’ contribution – 3.25% of the wages

52
Collection of contribution:

• It is obligatory on the part of the employer to calculate and remit ESI Contribution
comprising of employers’ share 3.25% plus employees’ share of 0.75% which is
payable within 15 days of the last day of the Calendar month in which the Contributions
fall due.
• The Corporation has authorized designated branches of the State Bank of India and
some other banks to receive the payments on its behalf.
• Principal employer [Section 2(17)]
▪ Owner or occupier, managing agent, legal representation, manager of the
factory
▪ Authority appointed by the respective Government or head of the department
▪ Person responsible for supervision and control of the establishment.
• According to Section 40 the principal employer shall pay in respect of every employee,
whether directly employed by him or by through an immediate employer, both the
employer’s contribution and the employees’ contribution.
• The Principal employer shall bear the expenses of remitting the contributions to the
Corporation.
• Immediate employer [Section 2(13)] employees employed by or through him, means
a person who has undertaken the execution, on the premises of a factory or an
establishment to which this Act applies.
• By deduction from any amount payable to him by the principal employer under any
contract, or
• As a debt payable by the immediate employer. (Section 41)
• No employees’ contribution shall be payable by or on behalf of an employee whose
average daily wages during a wage period are below such wages as may be prescribed
by the Central Government. (Section 42)
• Average daily wages are calculated in such manner as prescribed by the Central
Government.
• The Corporation may make regulations for any matter relating or incidental to payment
and collection of contributions.(Section 43)
a. The manner and time of payment of contributions

53
 b. The payment of contributions by means of adhesive or other stamps affixed to or
impressed upon books, cards or otherwise and regulating the manner, times and
conditions in, at and under which, such stamps are to be affixed or impressed.
c. The date by which evidence of contributions having been paid is to be received by
the Corporation.
d. The entry in or upon books or cards of particulars of contributions paid and benefits
distributed in the case of the insured persons to whom such books or cards relate.
e. The issue, sale custody, production, inspection and delivery of books or cards and
the replacement of books or cards which have been lost, destroyed or defaced.
• Every principal and immediate employer shall submit to the Corporation or to such
officer of the Corporation as it may direct such returns in such form and containing
such particulars relating to persons employed by him or to any factory or establishment
in respect of which he is the principal or immediate employer as may be specified in
regulations made in this behalf.(Section 44)
• The Corporation may appoint such person as Inspectors, as it thinks fit, for the purposes
of this Act, within such local limits as it may assign to them.(Section 45)
• Any contribution payable under this Act may be recovered as an arrear of land
revenue.(Section 45-B)

Contribution period and benefit period

• There are two contribution periods each of six months duration and two corresponding
benefit periods also six months duration as is under.

Contribution period Cash Benefit Period

1st April to 30th Sept. 1st Jan. to 30th June
1st Oct. to 31st March 1st July to 31st December

SOCIAL SECURITY BENEFITS:

• Section 46 of the Act describes all benefits that an injured employee can avail. It is
important to note that a worker can avail these benefits in the course of employment
only. It envisages following six social security benefits. They are:
▪ Medical Benefit,

54
 ▪ Sickness Benefit,
▪ Maternity Benefit,
▪ Disablement Benefit,
▪ Dependant’s Benefit, and
▪ Funeral Expenses.
• Employment injury [Section 2(8)] - it is a personal injury that an employee suffers.
Such injury must be the result of an accident or occupational disease that arises out of
employment.

Medical Benefit:

• Insured person [Section 2(14)] - a person who is or was an employee in respect of

whom contributions are or were payable under this Act and who is by reason thereof,
entitled to any of the benefits provided by this Act.
• Every insurable employee under the Act gets medical benefits the day he becomes an
employee.
• This benefit extends to his family members as well.
• This medical benefit has no ceiling in terms of expenditure on healthcare.
• Hence, the ESI Corporation takes care of all treatment expenses as per its rules.
• Apart from general healthcare benefit, retired and permanently disabled workers also.
• This benefit extends to the spouses of the workers as well.
• Full medical care is provided to an Insured person and his family members from the
day he enters insurable employment. There is no ceiling on expenditure on the treatment
of an Insured Person or his family member. Medical care is also provided to retired and
permanently disabled insured persons and their spouses on payment of a token annual
premium of Rs.120/-

ESI Corporation v. Harrison Malayalam Private Limited (1994 SCC L&S 1)

• It has been held that the stand of the employer that employees are not traceable or that
there is dispute about their whereabouts does not do away with the employer’s
obligation to pay the contribution.

55
Bharagath Engineers v. R. Ranganyaki (2003 SCC L&S 153)

• The Supreme Court after considering the background of the statutory provisions held
the payment or non-payment of the contributions and action or non-action prior to or
subsequent to the date of accident is really inconsequential.
• The deceased employee was clearly an “insured person” as defined in the Act. As the
deceased employee was suffered an employment injury as defined under Section 2(8)
of the Act and there is no dispute that he was in the employment of the employer, by
operation of Section 53 of the Act, the proceedings under the Workmen’s
Compensation Act were excluded statutorily.
• The High Court was not justified in holding otherwise. The benefits shall be worked
out by the ESI Corporation and shall be extended to the eligible persons.

Sickness Benefit: (Section 49)

• It signifies a state of health necessitating medical treatment and attendance and

abstention from work on medical grounds.
• Financial support extended by the Corporation in such a contingency is called Sickness
Benefit.
• When an insured employee is sick, he is entitled to receive for the period of his sickness,
benefit at the daily Standard Benefit Rate specified in Rule 54.
• This benefit is available to the insured employee for sickness occurring during any
benefit period if he has paid contributions for not less than 78 days of the corresponding
contribution period.
• Sickness benefit is not available for the 2 days of sickness.
• The maximum period for which sickness benefit is available is 91 days in one year.

Qualifying conditions:

• To become eligible to Sickness benefit, an IP should have paid contribution for not less
than 78 days during the corresponding contribution period.
• A person who has entered into insurable employment for the first time has to wait nearly
9 months before becoming eligible to sickness benefit, because his corresponding
benefit period starts only after that interval.

56
 • Sickness benefit is not payable for the first 2 days of a spell of sickness except in case
of a spell commencing within 15 days of closure of earlier spell for which sickness
benefit was last paid. This period of 2 days is called waiting period.

Extended Sickness Benefit (ESB):

• Insured persons suffering from long term diseases were experiencing great hardship on
expiry of 91 days sickness benefit.
• Often, they, though not fit for duty, pressed for a Final certificate.
• Hence, a provision for paying Sickness Benefit for an extended period (Extended
Sickness Benefit) of up to 2 years in a ESB period of 3 years.

Enhanced sickness benefits:

• It was introduced in the year 1976 as an incentive to insured persons for undergoing
Vasectomy/Tubectomy.
• Insured persons eligible to ordinary sickness benefit are paid enhanced sickness benefit
at double the rate of sickness benefit i.e., about full average daily wage for undergoing
sterilization operations for family welfare.
• Duration of enhanced Sickness Benefits is up to 7 days in the case of Vasectomy and
up to 14 days in the case of the Tubectomy from the date of operation or from the date
of admission in the hospitals as the case may be.
• The period is extendable in case of post-operative complications.

Maternity Benefit: (Section 50)

• It is payable to an Insured Woman in the following cases subject to contributory

conditions.
• In case of confinement it is payable for a period of 26 weeks. (Form 21 and 23)
• Section 2(3) – confinement – labour resulting in the issue of a living child or labour
after 26 weeks of pregnancy resulting in the issue of a child whether alive or dead.
• Average daily wages obtained by dividing the total wages paid during the contribution
period by the number of days for which these wages were paid, rounded to the next
higher rupee or 25 rupees, whichever is higher.
• Confinement expense – Rs.5000/- to insured woman, provided that the confinement
occurs at a place where necessary medical facilities under the ESI Schemes are not
available, subject to a maximum of two confinements.

57
 • Section 61 of the ESI Act provides that when a person is entitled to any of the benefits
provided by the ESI Act, then such a person is not entitled to receive any similar
benefits admissible under the provisions of any other enactment.
• Therefore, it becomes clear that a woman employee does not have right/option to
choose to be covered under the Maternity Benefit Act, when the ESI Act is applicable
to her.

Disablement Benefit:

• The Act provides for disablement benefit to insured persons suffering from disablement
due to employment injury sustained to an employee in a factory or establishment to
which the Act applies.

Temporary Disablement benefit:

• It is payable to an employee who suffers employment injury or occupational disease

and is certified to be temporarily incapable to work.
• From day one of entering insurable employment & irrespective of having paid any
contribution in case of employment injury. Temporary Disablement Benefit at the rate
of 90% of wage is payable so long as disability continues.

Permanent Disablement benefit:

• It is payable to an insured person who suffers permanent residual disablement as a result

of employment injury including Occupational Diseases and results in loss of earning
capacity.
• The proper authority for assessing loss of earning capacity for injuries are the Medical
Board and for occupational Diseases, Special Medical Board.
• The duration of Permanent Disablement Benefit may be for the period given by Medical
Board, if assessment is provisional or for entire life if assessment is final.

Permanent Disablement Benefit Rate:

• The benefit is paid at the rate of 90% of wage in the form of monthly payment
depending upon the extent of loss of earning capacity as certified by a Medical Board
• It is calculated as percentage of loss of earning capacity as assessed by the Medical
Board/Employees Insurance Court in relation to temporary disablement benefit.

58
 • List of injuries deemed to result in permanent total disablement and percentage loss of
earning capacity has been previewed in 2nd Schedule of the Act.
• Hence, the maximum rate of permanent disablement benefit can be equal to the rate of
temporary disablement benefit.
• The age of an insured person will have to be proved to the satisfaction of the
Corporation in all cases.
• Medical boards assess the age of insured person who are not able to produce satisfactory
proof of age and opinion of Medical Board shall be final in this regard.

Dependant’s Benefit:

• On death of an insured person due to employment injury, his dependants are entitled to
certain benefits.
• Dependants are specified in Section 2(6A) - “dependant” means any of the following
relatives of a deceased insured person, namely:
▪ a widow, a legitimate or adopted son who has not attained the age of twenty-
five years, an unmarried legitimate or adopted daughter;
▪ a widowed mother
if wholly dependent on the earnings of the insured person at the time of his death, a
legitimate or adopted son or daughter who has attained the age of twenty-five years and
is infirm;
if wholly or in part dependent on the earnings of the insured person at the time ofhis
death
▪ a parent other than a widowed mother,
▪ a minor illegitimate son, an unmarried illegitimate daughter or a daughter
legitimate or adopted or illegitimate if married and a minor or if widowed and
a minor,
▪ a minor brother or an unmarried sister or a widowed sister if a minor,
▪ a widowed daughter-in-law,
▪ a minor child of a pre-deceased son,
▪ a minor child of a pre-deceased daughter where no parent of the child isalive,
or
▪ a paternal grand-parent if no parent of the insured person is alive;

59
 • The Age of dependants, has to be determined either by production of documentary
evidence as specified in Regulation 80(2) or age certified by Medical Officer in charge
of Government Hospital or Dispensary.
• Dependant’s Benefit is paid at the rate of 90% of wage in the form of monthly payment
to the dependants of a deceased Insured person in cases where death occurs due to
employment injury or occupational hazards.

Funeral expenses:

• An amount of Rs.15,000/- is payable to the dependents or to the person who performs

last rites from day one of entering insurable employment.
• In case of death of an insured employee,
▪ the eldest surviving member of his family and
▪ if the employee had no family or was not living with his family at the time of his
death, then the person who was not living with his family at the time of his death,
▪ then the person who actually incurs the expenditure on the funeral of the employee,
is entitled to receive a payment called funeral expenses.
▪ This payment is given to the person concerned to meet the expenditure actually
incurred by him on the funeral of the employee.
▪ The claim must be put in within three months from the date of the death of the
insured person if not otherwise extended by the corporation or concerned authority.

A.Trehan v. Associated Electrical Agencies (1996 4 SCC 225)

• Trehan who was an employee of the respondent, received injuries on his face while he
was carrying out repairs of a T.V. in the course of his employment as a result of which
he lost vision in the left eye. After receiving benefits from E.S.I Corporation under the
E.S.I Act he served a notice on the respondent demanding Rs.7 lakhs as compensation.
• Thereafter he filed an application under the Workmen’s Compensation Act claiming of
Rs.1,06,785. The employer objected to the maintainability of the same and relied upon
Section 53 of the E.S.I. Act.
• The Supreme Court held that in view of the bar created by Section 53 the application
for compensation filed by the appellant under the Workmen’s Compensation Act was
not maintainable.

60
Confinement Expenses
• An Insured Women or an Insured Person in respect of his wife in case confinement
occurs at a place where necessary medical facilities under ESI Scheme are not available.

Physical Rehabilitation
• In case of physical disablement due to employment injury.

Old Age Medical Care

• For Insured Person retiring on attaining the age of superannuation or under VRS/ERS
and person having to leave service due to permanent disability insured person & spouse
on payment of Rs. 120/- per annum.

Rajiv Gandhi Shramik Kalyan Yojana

• This Scheme of Unemployment allowance was introduced w.e.f. 01-04-2005. An
Insured Person who become unemployed after being insured three or more years, due
to closure of factory/establishment, retrenchment or permanent invalidity are entitled
to :-

▪ Unemployment Allowance equal to 50% of wage for a maximum period of upto

Two Years.
▪ Medical care for self and family from ESI Hospitals/Dispensaries during the
period IP receives unemployment allowance.
▪ Vocational Training provided for upgrading skills - Expenditure on
fee/travelling allowance borne by ESIC.

Atal Beemit Vyakti Kalyan Yojana (ABVKY)

• This Scheme is a welfare measure for employees covered under Section 2(9) of ESI
Act, 1948, in the form of relief payment upto 90 days, once in a lifetime. The Scheme
was introduced w.e.f. 01-07-2018 on pilot basis for a period of two years initially.

61
 • The Scheme has now been extended for another one year i.e. from 1st July, 2020 to
30th June, 2021.
• It has also been decided to enhance the rate of unemployment relief under the scheme
to 50% of wages from earlier rate of 25% along with relaxation in eligibility conditions,
provided the Insured Person should have been in insurable employment for a minimum
period of two years immediately before her/his unemployment and should have
contributed for not less than 78 days in the contribution period immediately preceding
to unemployment and minimum 78 days in one of the remaining three contribution
periods in two years prior to unemployment.
• In a significant relaxation, relief shall become due for payment after 30 days from date
of unemployment and claim can be submitted directly to the designated ESIC Branch
Office by the worker.
• The Enhanced benefit and relaxed conditions are applicable during the period 24th
March 2020 to 31st December 2020. Claims to get the relief can be made online at
website www.esic.in along with submission of the physical claim with an affidavit,
photocopy of Aadhaar Card and Bank Account details to the designated ESIC Branch
Office by post or in person.

Incentive to employers in the Private Sector for providing regular employment to the
persons with disability

• Minimum wage limit for Physically Disabled Persons for availing ESIC Benefits is
25,000/-.
• Employerss' contribution is paid by the Central Government for 3 years.

Social Security Officers – Functions and Duties [Section 45] (2010 Amendment)
• The Corporation may appoint such person as Social Security Officers, as it thinks fit,
for the purposes of this Act. The following are his functions and duties.
▪ Enquiring into the correctness of any of the particulars stated in any return referred
to in Section 44.
▪ Social Security Officers can demand any principal or immediate employer to
furnish to him such information as he may consider necessary for the purposes of
this Act.

62
 ▪ Social Security Officers can at any reasonable time enter any office, establishment,
factory or other premises for inspection of examine such accounts, books and other
documents relating to the employment of persons and payment of wages or to
furnish to him such information as he may consider necessary.
▪ He can examine the employer, his agent or servant or any person found in such
factory, establishment, and office.
▪ He can make copies of, or take extracts from, any register, account book or other
document maintained in such factory, establishment, office or other premises.
▪ He can do re-inspection whether the records and returns submitted under Section
44 are correct or not.

[Section 45A] (2010 amendment)

• If no records or particular of employed persons are not maintain as required under this
act by the his employer, social Security officer by order, determine the amount of
contributions payable in respect of the employees of that factory or establishment.
• No order shall be passed by the Corporation in respect of the period beyond 5 years
from the date on which the contribution shall become payable.

ESI COURT:

Constitution: (Section 74)

• State Government by notification in the Official Gazette, constitute an Employees’

State Insurance Court for such local area.
• The Court shall consist of such number of Judges as the State Government may think
fit.
• Any person, who is or has been a judicial officer or is a legal practitioner of five years’
standing shall be qualified to be a Judge of the Employees’ Insurance Court.
• The State Government may appoint the same Court for two or more local areas or two
or more Courts for the same local area.
• Where more than one Court has been appointed for the same local area, the State
Government may by general or special order regulate the distribution of business
between them.

63
Matters to be decided: (Section 75)

• Whether any person is an employee within the meaning of this Act or whether he is
liable to pay the employees’ contribution, or
• The rate of wages or average daily wages of an employee for the purposes of this
Act, or
• The rate of contribution payable by a principal employer in respect of any
employee, or
• The person who is or was the principal employer in respect of any employee, or
• The right of any person to any benefit and as to the amount and duration thereof, or
• Any direction issued by the Corporation under Section 55A on a review of any
payment of dependant’s benefits, or
• Any other matter which is in dispute between a principal employer and the
Corporation, or between a principal employer and an immediate employer or
between a person and the Corporation or between an employee and a principal or
immediate employer, in respect of any contribution or benefit or other dues payable
or recoverable under this Act, or any other matter required to be or which may be
decided by the Employees’ Insurance Court under this Act.

Claims to be decided by the ESI:

a) Claim for the recovery of contribution from the principal employer;

b) Claim by a principal employer to recover contributions from any immediate employer;
c) Claim against a principal employer under Section 68;
d) Claim under Section 70 for the recovery of the value or amount of the benefits received
by a person when he is not lawfully entitled thereto;
e) Any claim for the recovery of any benefit admissible under this Act.

ESI Corporation v. M/s. Hotel Kalpaka International (AIR 1993 SC 1530)

• It has been observed by the Supreme Court under Section 40 the primary liability of the
employer to pay not only the employer’s contribution but also the employee’s
contribution.
• It was further observed that in the circumstances it cannot be said that the demand could
not be enforced against a closed business as such finding would, instead of promoting
the scheme and avoiding the mischief, perpetrate the mischief.

64
 • Any employer can easily avoid his statutory liability and deny the beneficial piece of
social security legislation to the employees, by closing down the business before
recover. That certainly is not the intendment of the Act.

Institution of the Proceedings: (Section 76)

• All the proceedings before the Employees’ Insurance Court shall be instituted in the
Court appointed for the local area in which the insured person was working at the time
the question or dispute arose.

Powers of Employees Insurance Court: (Section 78)

• It shall have all the powers of a Civil Court for the purpose of
▪ summoning and enforcing the attendance of witnesses,
▪ compelling the discovery and production of documents and material objects,
▪ administering oath and recording evidence and
▪ such Court shall be deemed to be a Civil Court.
• It shall follow such procedure as may be prescribed by rules made by the State
Government.
• All costs incidental to any proceedings before an Employees’ Insurance Court shall
subject to such rules as may be made in this behalf by the State Government, be in the
discretion of the Court.
• An order to the Employees’ Insurance Court shall be enforceable as if it were a decree
passed in a suit by civil court.

Appearance by Legal Practitioners: (Section 79)

• Any application, appearance or act required to be made or done by any person required
to be made or done by any person to or before an Employees’ Insurance Court.
• Other than appearance of a person required for the purpose of his examination as a
witness.

65
 • It may be made or done by a legal practitioner or by an officer of a registered trade
union authorised in writing by such person or with the permission of the Court, by any
other person so authorised.

Reference to High Court: (Section 81)

• An Employees’ Insurance Court may submit any question of law for the decision of the
High Court,
• If it does so shall decide the question pending before it in accordance with such
decision.

Appeal: (Section 82)

• No appeal shall lie from an Order of an Employees’ Insurance Court.

• An appeal shall lie to the High Court from an Order of an Employees’ Insurance Court
if it involves substantial question of law.
• The period of limitation for an appeal under this Section shall be sixty days.

Stay of Payment Pending Appeal: (Section 83)

• The Corporation has presented an appeal against an Order of the Employees’ Insurance
Court,
• The Decision of appeal withholds the payment of any sum directed to be paid by the
Order appealed against.

PENALTIES AND PUNISHMENTS:

Punishment for False Statements (Section 84)

Grounds:

i. The purpose of causing any increase in payment or benefit under this Act, or
ii. The purpose of causing any payment or benefit to be made where no payment or benefit
is authorised by or under this Act, or
iii. The purpose of avoiding any payment to be made by himself under this Act, or
iv. Enabling any other person to avoid any such payment, knowingly makes or causes to
be made any false statement, or false representation.

66
 Punishment:

▪ Imprisonment for a term which may extend to six months, or

▪ Fine not exceeding Rs.2000/-, or
▪ Both,
▪ An insured person is convicted under this section, he shall not be entitled for any
cash benefit under this Act for such period as may be prescribed by the Central
Government.

Punishment for Failure to pay Contribution (Section 58):

• If any person;
▪ Fails to pay any contribution which under this Act he is liable to pay, or
▪ Deducts or attempts to deduct from the wages of an employee the whole or any part
of the employer’s contribution, or
▪ In contravention of Section 72 reduces the wages or any privileges or benefits
admissible to an employee, or
▪ In contravention of Section 73 or any regulation dismisses, discharges, reduces or
otherwise punishes an employee, or
▪ Fails or refuses to submit any return required by the regulations, or makes a false
return, or
▪ Obstructs any Inspector or other official of the Corporation in the discharge of his
duties, or
▪ Is guilty of any contravention of or non-compliance with any of the requirements
of this Act or the rules or the regulations in respect of which no special penalty is
provided.
• According to Section 85A enhanced punishment up to 5 years imprisonment and fine
of Rs. 25,000 can be imposed in case of repetition of offences.

EMPLOYEES’ PROVIDENT FUND AND MISCELLANEOUS

PROVISIONS ACT, 1952

• It is a beneficial legislation enacted for the purpose of instituting a Provident Fund for
the benefit of employees working in factories and other establishments.

67
 • The Provisions have been made for the better future of the industrial worker on his
retirement and for the dependants in case of his death while in employment.
• The Employer under the Act is under a statutory obligation to deduct the specified
percentage of the contribution from the employee’s salary and matching contribution.

Object of the Act:

• The Primary object of the Act is to provide social security to inculcate amongst the
workers a spirit of savings while they are gainfully employed and to make provision for
their benefit after they retire from service and for the member of family after their death.
• Andhra University v. Regional Provident Fund Commissioner (AIR 1986 SC 463),
the Supreme Court has stated that in construing the provisions of the Act, it has to be
borne in mind that it is a beneficent piece of social welfare legislation aimed at
promoting and securing the well-being of the employees and the Court will not adopt a
narrow interpretation which will have the effect of defeating the very object and
purpose of the Act.

Applicability of the Act:

• Every factory engaged in any industry specified in Schedule I,

• Every establishment in which 20 or more are employed,
• Any class of such establishment employing 20 or more,
• Any establishment notified by the Central Government.
• Bikaner Cold Storage Co. Ltd. v. Regional Provident Fund Commissioner, (AIR
1974 SC 337), the Supreme Court held that casual or temporary workers cannot be
considered as employees under the Act.

Non-applicability of the Act:

• The Act does not apply to:

a) Any establishment registered under the Co-operative Societies Act, 1912 or under any
other law for the time being in force in any State relating to co-operatives societies,
employing less than 50 persons working without the aid of power,
b) Any establishment employing 50 or more persons until the expiry of three years from
the date on which the establishment has been set up,
c) Any establishment employing 20 or more but less than 50 persons before expiry of 5
years from the date on which the establishment is or has been set up,

68
d) The Central Government is empowered to exempt any class of establishments for such
period on such conditions as may be specified in the notification on the ground of
financial position or other circumstances of the case.

Eligibility:

• Any person who is employed for work of an establishment or employed through

contractor in or in connection with the work of an establishment is eligible for the
benefits under the Act.
• The Act is now applicable to employees drawing pay not exceeding Rs. 15,000/-
per month. The Act extends to whole of India except Jammu and Kashmir.
• The Term pay includes basic wages with dearness allowance, retaining allowance
(if any), and cash value of food concession.

Benefits:

• Employees covered enjoy a benefit of social security in the form of an unattachable,

unwithdrawable financial benefit.
• This sum is payable normally on retirement or death. Other benefits include
Employees’ Pension Scheme and Employees’ Deposit Linked Insurance Fund.

Constitutional validity of the Act:

69
 • The Act was challenged as unconstitutional on the ground that it is discriminative
in nature, and is violative of the equality principles laid down under Article 14 of
the Constitution of India because it applies only to a particular class of industries.
• The Supreme Court did not approve this view and said that the Act is
constitutionally valid.
• The Court observed that there is no discrimination or violation of the principles of
equality.
• The power conferred on the Government is to apply the provisions of the Act only
for a certain class of industries is only a reasonable classification which is valid.

Definitions

• “Contribution” means a contribution payable in respect of a member under a Scheme

or the contribution payable in respect of an employee to whom the Insurance Scheme
applies. [Section 2(c)]
• “Employer” means
(i) in relation to an establishment which is a factory, the owner or occupier of the
factory, including the
agent of such owner or occupier, the legal representative of a deceased owner or
occupier and where a person has been named as a manager of the factory under clause
(f) of sub-section (1) of Section 7 of the Factories Act, 1948, the person so named; and

(ii) in relation to any other establishment, the person who or the authority which, has
the ultimate control over the affairs of the establishment, and where the said affairs are
entrusted to a manager, managing director, or managing agent, such manager, managing
director or managing agent. [Section 2(e)]

• “Employee” means any person who is employed for wages in any kind of work, manual
or otherwise, in or in connection with the work of an establishment and who gets his
wages directly or indirectly from the employer and includes any person
(i) employed by or through a contractor in or in connection with the work of the
establishment;

70
 (ii) engaged as an apprentice, not being an apprentice engaged under Apprentices Act,
1961 or under the standing orders of the establishment. [Section 2(f)]

• “Exempted Establishment” means an establishment in respect of which an exemption

has been granted under Section 17 from the operation of all or any of the provisions of
any Scheme or the Insurance Scheme as the case may be whether such exemption has
been granted to the establishment as such or to any person or class of persons employed
therein. [Section 2(fff)]

• “Factory” means any premises including the precincts thereof, in any part of which a
manufacturing process is being carried on or ordinarily so carried on, whether with the
aid of power or without the aid of power. [Section 2(g)]

• “Occupier” of a Factory means the person, who has ultimate control over the affairs
of the factory, and where the said affairs are entrusted to a managing agent, such agent
shall be deemed to be the occupier of the factory. [Section 2(k)]

SCHEMES UNDER THE EMPLOYEES PROVIDENT FUND ACT:

Kinds of Provident Funds:

• The Constitution of India under Directive Principles of State Policy provides that the
State shall within the limits of its economic capacity make effective provision for
securing the right to work, to education and to public assistance in cases of
unemployment, old-age, sickness, disablement and undeserved want.
• Presently, the following three schemes are in operation under the Act. They are:
a. Employees’ Provident Fund Scheme, 1952
b. Employees’ Deposit Linked Insurance Scheme, 1976
c. Employees’ Family Pension Scheme, 1995

71
Employees’ Provident Fund Scheme, 1952 [Section 5(1)]

• The Central Government is authorized to frame a scheme to be called the Employees’

Provident Fund Scheme for the establishment of provident funds under this Act for
▪ employees or for any class of employees,
▪ specify the establishments or class of establishments to which the said Scheme shall
apply,
▪ there shall be established, as soon as may be after the framing of the Scheme,
▪ a Fund in accordance with the provisions of this Act and the Scheme.
• The Fund shall be administered by the Central Board constituted under Section 5A of
the Act.
• The Scheme shall take effect either prospectively or retrospectively.

Employees’ Deposit Linked Insurance Scheme, [Section 6(1)]

• The Central Government is authorized to frame a scheme to be called the Employees’

Deposit-linked Insurance Scheme for the purpose of providing life insurance benefits
to the employees of any establishments to which this Act applies.

72
 • The benefit under the Scheme is so devised that it acts as an incentive to the members
to save more in their Provident Fund Account.
• The benefit under this scheme is linked to the amount of accumulation in the Provident
Fund Account of the member.
• The Scheme applies to all the establishments to which the Employees’ Provident Fund
Scheme applies.
• All the members of the Employees’ Provident Fund Scheme are covered as members
of the Employees’ Deposit Linked Insurance Scheme also.

Employees’ Family Pension Scheme, 1995 [Section (6A)]

• The Central Government is authorized to frame a scheme to be called the Employees’

Family Pension Scheme for the purpose of providing family pension and life insurance
benefit to the employees of any establishment or class of establishments to which this
Act applies. The Employees’ Family Pension Scheme provides for following benefit
package:
▪ Pension for life to the member, on retirement and invalidation,
▪ To the member of the family upon death of the member,
▪ Facility for capital return (corpus accretion) on option formula basis,
▪ Commutation of pension up to 1/3rd of pension amount,
▪ Retention of membership of the Scheme till attaining the age of 58 years.
• The Pension Fund is evaluated by an Actuary or an annual basis.
• Based on the valuation recommendations, Central Government determines the amount
of relief on pensions to existing pensioners.
• Retirement pension under the new scheme will be payable on fulfilling minimum 10
years eligible service and on attaining age of 58 years.

Mafat Lal Group Staff Association v. Regional Commissioner Provident Fund and
Others (1994 SCC L&S 852)

• The Validity of Employees Family Pension Scheme was called in question.

• The Supreme Court observed that merely because the employees who were the
members of the Employees Provident Fund Scheme before March 1, 1978 were given
an option to become or not to become members of the Family Pension Scheme, it does
not follow that the employees who become the members of the PF Scheme after
March1, 1971, and who are not given such option are discriminated against.

73
 • This is a beneficial social legislation contrived with the intention of providing a safety
net to the families of deceased employees- a safety net to prevent such families from
sinking into the depths of poverty and misery, instead of welcoming it, we find it rather
curious that it is being attacked by the very employees for whose benefit it is devised.

Investment
• The Amount received by way of Provident Fund contributions is invested by the Board
of Trustees in accordance with the investment pattern approved by the Government of
India.
• The Members of the Provident Fund get interest on the money standing to their credit
in their Provident Fund Accounts.
• The Rate of interest for each financial year is recommended by the Board of Trustees
and is subject to final decision by the Government of India.

Advances/Withdrawals
• Advances from the Provident Fund can be taken for the following purposes subject to
conditions laid down in the relevant paras of the Employees Provident Fund Scheme:
(1) Non-refundable advance for payment of premium towards a policy or policies of
Life Insurance of a member;
(2) Withdrawal for purchasing a dwelling house or flat or for construction of a dwelling
house including the acquisition of a suitable site for the purpose, or for
completing/continuing the construction of a dwelling house, already commenced by the
member or the spouse and an additional advance for additions, alteration or substantial
improvement necessary to the dwelling house;
(3) Non-refundable advance to members due to temporary closure of any factory or
establishment for more than fifteen days, for reasons other than a strike or due to non-
receipt of wages for 2 months or more, and refundable advance due to closure of the
factory or establishment for more than six months;
(4) (i) Non-refundable in case of:
(a) hospitalisation lasting one month or more, or
(b) major surgical operation in a hospital, or
(c) suffering from T.B., Leprosy, Paralysis, Cancer, Mental derangement or
heart ailment, for the treatment of which leave has been granted by the
employer;

74
 (ii) Non-refundable advance for the treatment of a member of his family, who has been
hospitalised or requires hospitalisation, for one month or more:
(a) for a major surgical operation; or
(b) for the treatment of T.B., Leprosy, Paralysis, Cancer, mental derangement
or heart ailment;
(5) Non-refundable advance for daughter/sons marriage, self-marriage, the marriage of
sister/brother or for the post matriculation education of son or daughter;
(6) Non-refundable advance to members affected by cut in the supply of electricity;
(7) Non-refundable advance in case property is damaged by a calamity of exceptional
nature such as floods, earthquakes or riots;
(8) Withdrawals for repayment of loans in special cases; and
(9) Non-refundable advance to physically handicapped members for purchasing an
equipment required to minimise the hardship on account of handicap.

Final withdrawal
• Full accumulations with interest thereon are refunded in the event of death, permanent
disability, superannuation, retrenchment or migration from India for permanent
settlement abroad/taking employment abroad, voluntary retirement, certain discharges
from employment under Industrial Disputes Act, 1947, transfer to an
establishment/factory not covered under the Act.
• In other cases, with permission of commissioner or any subordinate officer to him, a
member is allowed to draw full amount when he ceases to be in employment and has
not been employed in any establishment to which the Act applies for a continuous
period of atleast 2 months.
• This requirement of 2 months waiting period shall not apply in cases of female members
resigning from service for the purpose of getting married.

ADMINISTRATION OF PROVIDENT FUND SCHEME:

Constitution and Appointment:

• This Scheme shall be administered by the Central Board constituted under Section 5-A
of the Act.

75
 • The Employees Provident Fund Act, 1952 has made provisions for the constitution and
appointment of the following authorities for the effective implementation of the Act
and Schemes framed.

CENTRAL BOARD: (Section 5A)

• The Central Government may, by notification in the Official Gazette, constitute the
Central Board consisting of the following persons as members. They are;
▪ Chairman and Vice-Chairman to be appointed by the Central Government.
▪ The Central Provident Fund Commissioner, Ex Officio
▪ Not more than 5 persons amongst Central Government Officials
▪ Not more than 15 representatives of States
▪ 10 persons representing employers of the establishments
▪ 10 persons representing employees in the establishments
• The Central Board shall subject to the provisions of Section 6 and 6C administer the
Fund vested in it in such manner as may be specified in the Scheme.
• The Central Board shall perform such other functions as it may be required to perform
by or under any provisions of the Scheme, the Pension Scheme and the Insurance
Scheme.
• It shall be the duty of the Central Board to submit also to the Central Government an
annual report of its work and activities and the Central Government shall cause a copy
of the annual report.
• The audited accounts together with the report of the Comptroller and Auditor-
General of India and the comments of the Central Board thereon to be laid before each
House of Parliament.

Executive Committee: (Section 5AA)

• The Central Government may, by notification in the Official Gazette, constitute, an

Executive Committee to assist the Central Board in the performance of its functions.
• The terms and conditions subject to which a member of the Central Board may be
appointed or elected to the Executive Committee and the time, place and procedure of
the meeting of the Executive Committee shall be such as may be provided for in the
Scheme.
• The Executive Committee shall consist of the following person as members, namely;
▪ Chairman appointed by the Central Government.

76
 ▪ 2 persons amongst the persons referred in Section 5A(1)(b).
▪ 3 persons amongst the persons referred in Section 5A(1)(c).
▪ 3 persons representing the employers elected by the Central Board.
▪ 3 persons representing the employees elected by the Central Board.
▪ The Central Provident Fund Commissioner, ex-officio.

STATE BOARD: (Section 5B)

• The Central Government may, after consultation with the Government of any State, by
notification in the Official Gazette, constitute the State Board in such manner as may
be provided for in the Scheme.
• A State Board shall exercise such powers and perform such duties as the Central
Government may assign to it from time to time.
• The terms and conditions subject to which a member of a State Board may be appointed
and the time, place and procedure of the meetings of a State Board shall be such as may
be provided for in the Scheme.
• Every Board of Trustees constituted under Section 5-A or Section 5-B shall be a body
corporate under the name specified in the notification constituting it, having perpetual
succession and a common seal and shall by the said name sue and be sued.

Regional Committee:

• Until such time a State Board is constituted for a State, the Central Government may
set up a Regional Committee.
• Committee will function under the control of the Central Board.
• It shall consist of the following persons. They are:
a. A Chairman appointed by the Central Government,
b. 2 persons appointed by the Central Government on the recommendations of the
State Government and
c. 3 persons representing employers of the establishment
d. 3 persons each representing employees of the establishment
• The Regional Committee shall advise the Central Board on;
a. Matters which are referred to it from time to time by the Central Board

77
 b. All matters which are connected with the administration of the scheme in the
State such as progress of recovery of provident fund contribution and other
charges, speedy disposal of prosecutions, speedy settlement of claims and
speedy sanction of advances.

Central Provident Fund Commissioner:

• The Central Government shall appoint a Central Provident Fund Commissioner who
shall be the Chief Executive Officer of the Central Board.
• Deputy and Regional Provident Fund Commissioner:
• The Central Government may also appoint as many Deputy Provident Fund
Commissioners and Regional Provident Fund Commissioners as it may deem fit to
assist the Central Provident Fund Commissioner in the Discharge of his duties.
• The Central Board may appoint such other officers and employees as it may consider
necessary for the efficient administration of the various schemes under the Act.

PAYMENT OF BONUS ACT, 1965

• The Payment of Bonus Act, 1965 has been enacted for the payment of bonus to persons
employed in certain establishments on the basis of production or productivity and for
matters connected therewith.

Objective

• To impose statutory liability on the employer to pay bonus in case of profits or losses.
• To lay down the principle for payment of bonus according to the prescribed formula.
• To prescribe Minimum & Maximum bonus.
• Payment of bonus as per the scheme of set off and set on.
• To provide redressal mechanism for enforcement of liability.

78
Definitions

• "Accounting year" [Section 2(1)] means-

(i) in relation to a corporation, the year ending on the day on which the books and accounts
of the corporation are to be closed and balanced;
(ii) in relation to a company, the period in respect of which any profit and loss account of
the company laid before it in annual general meeting is made up, whether that period is a
year or not;
(iii) in any other case-
(a) the year commencing on the 1st day of April; or
(b) if the accounts of an establishment maintained by the employer thereof are closed and
balanced on any day other than the 31st day of March, then, at the option of the employer,
the year ending on the day on which its accounts are so closed and balanced.

• "Allocable surplus" [Section 2(4)] means-

(a) in relation to an employer, being a company (other than a banking company)] which has
not made the arrangements prescribed under the Income-tax Act for the declaration and
payment within India of the dividends payable out of its profits in accordance with the
provisions of section 194 of that Act, 67% of the available surplus in an accounting year;
(b) in any other case, 60% of such available surplus;

• "Corporation" [Section 2(11)] means any body corporate established by or under any
Central, Provincial or State Act but does not include a company or a co-operative
society;

• "Employee" [Section 2 (13)] means any person (other than an apprentice) employed
on a salary or wage not exceeding 21,000/- rupees per month in any industry to do
any skilled or unskilled manual, supervisory, managerial, administrative, technical or
clerical work for hire or reward, whether the terms of employment be express or
implied; (2007 amendment)

Eligibility for bonus [Section 8] (2007 amendment)

• The Act mandates payment of bonus to employees’ whose salary or wage is up to Rs
21,000 per month.

79
 • For the purpose of calculation Rs.7,000 per month maximum will be taken even if an
employee is drawing up to Rs.7,000 per month. (Sec. 12)
• An employee will be entitled only when he has worked for 30 working days in that
year.

Calculation of bonus with respect to certain employees [Section 12] (2015 amendment)
• Where the salary or wage of an employee exceeds Rs.7,000/- per mensem, the bonus
payable to such employee under Sec.10, or as the case may be, under Sec.11, shall be
calculated as if his salary or wage were Rs.7,000/- per mensem.
• The Government has decided to enhance the eligibility limit for payment of bonus
3500/- per month

Payment of Bonus Act not to apply to certain classes of employees. [Section 32]

• Life Insurance Corporation ,

• The Indian Red Cross Society or any other institution of a like nature,
• Universities and other educational institutions ,
• Institutions (including hospitals, chambers of commerce and society welfare
institutions) established not for purposes of profit,
• Employees employed through contractors on building operations,
• Employees employed by the Reserve Bank of India,
• The Industrial Finance Corporation of India,
• Financial Corporations,
• the National Bank for Agriculture and Rural Development,
• the Unit Trust of India,
• the Industrial Development Bank of India,

Payment of minimum bonus [Section 10]

• Bonus should be paid along with the salary

• Every year, every employer shall be bound to pay bonus to every employee.
• a minimum bonus which shall be 8.33% cent of the salary or wage earned by the
employee during the accounting year or 100/- rupees, whichever is higher.
• Bonus shall be payable in case of profits or losses in the accounting year.

80
• In Jalan Trading Co. v. Mill Mazdoor Sabha (AIR 1967 SC 691), the Supreme Court
observed that the power of Parliament to fix minimum bonus cannot be questioned,
because the object of the Act is to make an equitable distribution of surplus profits
between the three factors of production. It flows from jurisdiction over industrial and
labour disputes, welfare of labour. The legislation is therefore neither a fraud on the
Constitution nor is colourable exercise of power.

• In M/s. J.K. Acrylics v. Union of India (1997 (2) LLJ 608.), the Court held that where
the Payment of Bonus Amendment Act, 1995, replacing the Amendment Ordinance of
1993 was challenged on the ground that it cannot have retrospective operation, the
employer has no right to say that his liability to pay bonus cannot be retrospectively
enlarged.

• In J.K. Chemicals v. Govt. of Maharashtra (1997 (3) Supp. LLJ 578.), the Court
observed that the obligation to pay compulsory minimum bonus is subject to the claim
for exemption under Section 36 of the Act However the payment of compulsory
minimum bonus cannot be avoided merely because there was loss in the concerned
accounting year. The expression “financial position of the establishment'’ in Section 36
is comprehensive to include loss suffered by the establishment and various other
factors, the totality of which would picture the economic conditions of the
establishment.

• In Midhani Workers and Staff Union v. Mishradhatu Nigam Ltd.,

Hyderabad, [(2000) ILLJ 698 AP] it was held that a writ of mandamus will be issued
compelling performance of a statutory duty. Section 10 of the Act, imposes a statutory
duty in respondent industry to pay minimum bonus to its workmen irrespective of the
allocable surplus.

81
Power of exemption of bonus payment by government [Section 36]

• In Certain circumstances payment of minimum bonus can be exempted by the

appropriate government by taking consideration into relevant circumstances of concern
factory or establishment which is in losses.
• Payment of bonus exemption by the appropriate government may be given for a certain
period only.
• In Phoenix Mills v. State of Maharashtra, (1993) [IIILLJ 844 Bom.] it was held that
where the mill applied for exemption under section 36 and the minister refused such
exemption without taking into account relevant factors, such order is not a proper order.
Here are the relevant factors may be, the reasons for occurrence of losses to company,
reasons and ingenuity in consecutive occurrence of losses, the reasons must be
justifiable, there should not be intention to avoid payment of bonus by creating fake
losses (mensrea).

Payment of Maximum Bonus [Section 11]

82
 • In case the allocable surplus amount [Section 2(4)] exceeds the minimum bonus
(8.33%) payable amount to employees, the employer is bound to pay extra percentage
of bonus.
• But maximum of 20% of bonus is payable to the every employee on the wage or salary
earned during the year.

Disqualification of Bonus [Section 9]

• An employee shall be disqualified from receiving bonus under this Act, if he is

dismissed from service for-
▪ Fraud;
▪ Riotous or violent behaviour while on the premises of the establishment;
▪ Theft, misappropriation or sabotage of any property of the establishment.
• If an employee has been dismissed from service for fraud, riotous or violent behaviour
while on the premises of the establishment or / and theft, misappropriation or sabotage
of any property of the establishment, the employer has the right to forfeit bonus of the
concerned employee.
• It must be however kept in mind that, in the above mentioned circumstance the
employer can forfeit bonus of the concerned employee only in the accounting year in
which the misconduct took place, and not with respect to any year preceding or
succeeding the accounting year in question [Himalaya Drug Co. Makali v. II
Additional Labour Court, Bangalore (1986) II L.L.J 45 (Karnataka High Court)].

Proportionate, Reduction in Bonus in Certain Cases [Section 13]

• Where an employee has not worked for all the working days in an accounting year, the
minimum bonus of one hundred rupees or, as the case may be, of sixty rupees, if such
bonus is higher than 8.33 per cent of his salary or wage for the days he has worked in
that accounting year, shall be proportionately reduced.

Computation of number of working days [Section 14]

83
 • Section 14: An employee shall be deemed to have worked in an establishment in any
accounting year also on the days on which –

(a) He has been laid off;

(b) He has been on leave with salary or wage;

(c) He has been absent due to temporary disablement caused by accident arising out of
and in the course of his employment; and

(d) The employee has been on maternity leave with salary or wage, during the
accounting year.

Calculation of Bonus Payment

Computation of gross profits [Section 4]

• There few differences in computation of gross profits in case of banking company and
other than banking companies.
• For accurate computation of the gross profits in case of banking companies refer to First
schedule and for other companies but not banking companies refer to Second schedule.
But over view for computation of gross profits is mentioned below:
• Net profit (P&L a/c) +Add following items
▪ Income tax.
▪ Provision for: Bonus to employees, Depreciation, Direct taxes.
▪ Bonus paid to employees in respect of previous accounting years.
▪ The amount, if any, paid to, or provided for payment to, an approved gratuity fund.
▪ The amount actually paid to employees on their retirement or on termination of their
employment for any reason.
▪ Donations.
▪ Annuity due.
▪ Capital expenditure (other than capital expenditure on scientific research.
▪ Capital losses.
▪ Capital losses (other than losses on sale) of Capital assets on which depreciation.
has been allowed for income-tax or agricultural income-tax).
▪ Losses of, or expenditure relating to, any business situated outside India.

84
Computation of Available surplus [Section 5]

• Available surplus = gross profit [derived as per First Schedule or Second Schedule of
this act] – (minus) Depreciation, investment allowance or development allowance
[Section 6] - (minus) direct taxes payable [Section 7] - (minus) further sums as are
specified in respect of the employer in the Third Schedule of this act consist of dividend
payable (preference shares), reserves and % of paid up equity share capital
[investment].

Sums deductible from gross profits [Section 6]

• Capital receipts and capital profits (other than profits on the sale of assets on which
depreciation has been allowed for income-tax or agricultural income-tax).
• Profits of, and receipts relating to, any business situated outside India.
• Income of foreign concerns from investments outside India.
• Expenditure or losses (if any) debited directly to reserves, other than -
▪ Capital expenditure and capital losses (other than losses on sale of capital assets
on which depreciation has not been allowed for income-tax or agricultural
income-tax);
▪ Losses of any business situated outside India.
• In the case of foreign concerns proportionate administrative (overhead) expenses of
Head Office allocable to Indian business.

(f) Refund of any direct tax paid for previous accounting years and excess provision, if any, of
previous accounting years relating to bonus, depreciation, taxation or development rebate or
development allowance, if written back.

Allocable surplus [Section 2(4)]

• Allocable surplus = 67% of the available surplus (other than banking companies) or
60% of the available surplus (banking companies and companies linked with abroad).
• Payment of bonus calculated on the allocable surplus which is derived by the above
calculation.

Set on and Set off [Section 15]

Section 15 provides for set-on and set-off of allocable surplus.

85
 • Where for any accounting year the allocable surplus exceeds the amount of maximum
bonus payable to employees in an establishment under Section 11 of the Bonus Act,
then the excess shall, subject to a limit of 20 % (percentage twenty) of the total salary
or wage of the employees employed in the establishment in that accounting year, be
carried forward in the succeeding accounting year, up to the fourth accounting year to
be utilized for the purpose of payment of bonus in the manner illustrated in the Fourth
Schedule of the Bonus Act.
• Where there is no allocable surplus and there is no amount or sufficient amount carried
forward for the purpose of payment of the minimum bonus, then such minimum amount
of the deficiency, as the case may be, shall be carried forward for being set off on the
succeeding accounting year up to the fourth accounting year.
• The amount of set-on or set-off carried forward from earliest accounting year shall be
taken into account.
• As per the Bonus Act the words ‘working days’ in an accounting year includes days
not worked because of leave, absenteeism due to disablement caused by accident arising
out of and in the course of employment, maternity leave and days involved in lay-offs
under an agreement or as permitted by standing orders under the Industrial
Employment (Standing Orders) Act, 1946 (20 of 1946).

Special provisions [Section 16]

• In case of new establishments up to 5 years, employees’ bonus is payable only in case

of profits only but not in losses by the management or employer.
• Condition that the Profits are remaining amounts after deducting expenses, depreciation
and taxes.

Deduction of certain amounts from bonus payable [Section 18]

• Employee is found guilty of misconduct causing financial loss to the employer, then, it
shall, be lawful for the employer to deduct the amount of loss from the amount of bonus
payable by him to the employee under this Act in respect of that accounting year only
and the employee shall be entitled to receive the balance, if any.

Time limit for payment [Section 19]

• Bonus should be paid within a period of 8 months from the close of the accounting year.

86
 • Maximum extended period for payment of bonus is 2 years, but with the permission of
the government only.

Recovery of bonus due from an employer [Section 21]

• If any amount is due to employee as bonus from his employer, he can write and apply
to the government for the recovery of the bonus from the employer.
• Application shall be made within one year from the date on which the money became
due to the employee from the employer.

Reference of dispute under this Act [Section 22]

• Where any dispute arises between an employer and his employees with respect to the
bonus payable under this Act such dispute shall be deemed to be an industrial dispute
within the meaning of the Industrial Dispute Act, 1947.
• All disputes shall be referred to the Labour courts or the industrial tribunals.

Maintenance of registers, records, etc. [Section 26]

• Every employer shall prepare and maintain such registers, records and other documents
in such form and in such manner as may be prescribed.

Inspectors [Section 27]

• The Government may, by notification in the official Gazette, appoint such persons as it
thinks fit to be Inspectors for the purpose of this Act and may define the limits within
which they shall exercise jurisdiction.

Powers:

• Inspector can any reasonable time can enter in the premises and inspect or examine the
records, accounts, books, registers and any other documents.
• Employer is having duty to furnish any information asked by the inspector.

Offences and Penalties [Sections 28 & 29]

• For contravention of the provisions of the Act or rules the penalty is imprisonment up
to 6 months or fine up to Rs.1000 or both.

87
 • In case of offences by companies, every person who, at the time the offence was
committed, was in charge of, and was responsible to, the company for the conduct of
business of the company, as well as the company, shall be deemed to be guilty of the
offence and shall be liable to be proceeded against and punished accordingly.
• Any such person liable to any punishment if he proves that the offence was committed
without his knowledge or that he exercised all due diligence to prevent the commission
of such offence.

Special provision with respect to payment of bonus linked with production or

productivity. [Section 31A]

• Any Agreements made between the employee and employee regarding the non-
payment of bonus is not valid. If any such agreement is made in between the employer
and employee, government permission is needed.
• Employees are not entitled receive bonus excess than 20% of their wage or salaries.

88
89
 THE PAYMENT OF GRATUITY ACT, 1972

• Payment of Gratuity Act, 1972 provides for a scheme for the payment of gratuity to
employees engaged in factories, mines, oilfields, plantations, ports, railway companies,
shops or other establishments.
• The Payment of Gratuity Act is administered by the Central Government in
establishments under its control, establishments having branches in more than one
State, major ports, mines, oil fields and the railways and by the State governments and
Union Territory administrations in all other cases.

Object

The objects of the Payment of Gratuity Act, 1972 are mentioned below-

(i) To provide for a Scheme for the payment of Gratuity to employees.

(ii) To provide for matters connected with or incidental to the Scheme for payment of
Gratuity.
(iii) To define the procedure for computation of gratuity.
(iv) To provide machinery to decide disputes relating to payment of gratuity.

90
Definitions

• "Appropriate Government" [Section 2(a)] means, -

(i) in relation to an establishment -

(a) belonging to, or under the control of, the Central Government,
(b) having branches in more than one State,
(c) of a factory belonging to, or under the control of, the Central Government,
(d) of a major port, mine, oilfield or railway company, the Central Government,
(ii) in any other case, the State Government;

• "Completed year of service" [Section 2(b)] means continuous service for one year;
• “Employee” [Section 2(e)] means any person (other than an apprentice)
who is employed for wages, whether the terms of such employment are express or
implied, in any kind of work, manual or otherwise, in or in connection with the work
of a factory, mine, oilfield, plantation, port, railway company, shop or other
establishment, to which this Act applies, but does not include any such person who
holds a post under the Central Government or a State Government and is governed by
any other Act or by any rules providing for payment of gratuity.

• "Continuous service" [Section 2(c)] means continuous service as defined in section

2A;
• "Notification" [Section 2(K)] means a notification published in the Official Gazette
and the expression "notified" shall be construed accordingly.
• "Retirement" [Section 2(q)] means termination of the service of an employee
otherwise than on superannuation;
• "Superannuation" [Section 2(r)] in relation to an employee, means the attainment
by the employee of such age as is fixed in the contract or conditions of service at the
age on the attainment of which the employee shall vacate the employment;
• "Wages" [Section 2(s)] means all emoluments which are earned by an employee while
on duty or on leave in accordance with the terms and conditions of his employment and
which are paid or are payable to him in cash and includes dearness allowance but does
not include any bonus, commission, house rent allowance, overtime wages and any
other allowance.

91
Applicability

• Every factory (as defined in Factories Act), mine, oilfield, plantation, port and railway.
• Every shop or establishment to which Shops & Establishment Act of a State applies in
which 10 or more persons are employed at any time during the year end.
• Any establishment employing 10 or more persons as may be notified by the Central
Government.
• Once Act applies, it continues to apply even if employment strength falls below 10.
• In Regional Provident fund Commissioner v. The Regional Labour Commissioner
and others (1985 II labour Law Journal 63), an upper divisional clerk working in the
establishment of regional Provident fund Commissioner resigned his job in March 1982
after rendering service for more than nine years, and claimed that the tea under this act.
The High Court of Karnataka held that the said establishment falls within the definition
of an establishment under The Payment of Gratuity Act, 1972 and the employee was
entitled to gratuity, notwithstanding the fact that he resign the job.
• In Arasuri Ambajimata Mandir devasthan Trust v. Jaitabhai Patel, Shramjivi
general Works union ( 1983 (3) Supp. labour law general 1129), it was held at the
though the post in Temple trust is controlled by state government., It is not a post under
State government. So as to fall under the exclusion under section 2 (e) and hence it falls
under the definition of employee and is entitled to gratuity under the act. which means
though the temple is not mentioned in the section (e) of the act, court held that it is
applicable under this act.

Eligibility for gratuity (Section 4):

Continuous service (Section 2A)

• Gratuity shall be payable to an employee on the termination of his employment after he

has rendered continuous service for not less than five years.
• An Employee shall be said to be in continuous service for a period if he has been in
uninterrupted service and includes service which may be interrupted on account of
sickness, accident, leave, absence from duty without leave, lay off, strike or a lock-out
or cessation of work not due to any fault of the employee, whether such uninterrupted
or interrupted service was rendered before or after the commencement of this Act.

92
• Where an employee is not in continuous service for any period of one year or six
months, he shall be deemed to be in continuous service under the employer:
▪ for the said period of one year he has worked for one hundred and ninety days in
the case of an employee employed below the ground in a mine or in an
establishment which works for less than six days in a week and two hundred and
forty days in any other case;
▪ for the said period of six months has actually worked under the employer for not
less than ninety-five days in the case of an employee employed below the ground
in a mine or in an establishment which works for less than six days in a week and
one hundred and twenty days, in any other case;
▪ The number of days on which an employee has actually worked under an employer
shall include the days on which:
• he has been laid-off under an agreement or as permitted by standing orders made under
the Industrial Employment (Standing Orders) Act, 1946 or under the Industrial Disputes
Act, 1947 or under any other law applicab1c to the establishment;
• he has been on leave with full wages earned in the previous year;
• he has been absent due to temporary disablement caused by accident arising out of and
in the course of his employment and
• In the case of a female, she has been on maternity leave; so, however, that the total
period of such maternity leave does not exceed twelve weeks.
• In case of employees in seasonal establishments he shall be deemed to be in continuous
service for any period of one year or six months if he has actually worked for not less
than seventy-five per cent of the number of days on which the establishment was in
operation during such period.
• Mere absence cannot be said to result in breach of continuity of service for the purpose
of the Act [Kothari Corporation v. Appellate Authority (Deputy Commissioner of
Labour), Karnool 1998 LLR 223]
• The Supreme Court in the case of Dig Vijay Woollen Mills Ltd. v. Mahendra
Prataprai Buch [1980 (2) LLN 417 has held that the wages for 26 days are to be
treated as monthly wages and not of thirty days and submitted that since for calculating
monthly wages, the wages taken is for 26 working days, under the same principle, the
weekly holidays and national and festival holidays should be excluded in the

93
 computation of continuous service for the purpose of gratuity under the provisions of
the Gratuity Act.

Eligibility

• Gratuity shall be payable to an employee on the termination of his employment after he

has rendered continuous service for not less than five years –
a) On his superannuation or
b) On his retirement or resignation or
c) On his death or disablement due to accident or disease.
• In the case of death of the employee, gratuity payable to him shall be paid to his
nominee or, if no nomination has been made, to his heirs.
• where any such nominees or heirs is a minor, the share of such minor shall be deposited
with the controlling authority (i.e. government officer) who shall invest the same for
the benefit of such minor in such bank or other financial institution, as may be
prescribed, until such minor attains majority.
• The Maximum amount of gratuity payable to an employee shall not exceed 3, 50,000/-
rupees. According to the amendment in the 2010, the maximum gratuity payable
amount was increased to rupees 10,00,000/-
• According to the Payment of Gratuity (Amendment) Act, 2018 the maximum amount
of gratuity payable to an employee shall not exceed 20,00,000/- rupees.

Calculation of the amount of gratuity (Section 4)

• Monthly rated employee;

• Piece rated employee;
• Employee of Seasonal Establishment.

Monthly Rated Employee

• Last drawn wages*15/26*Completed years of service(Including a part of year in excess

of 6 months)

Note:

94
 • Wages = Last Drawn
• Month = Period of 26 Days
• 15 days wages = Last drawn wages*15/26

Piece-Rated Employee

• Last drawn wages*15/26*Completed years of Service (Including a part of year in

excess of 6 months).

Note:

• Last drawn wages = Total wages received during 3 months immediately preceding
termination/Days actually worked.
• Last drawn wages shall not include overtime wages.

Seasonal Establishment

• Such an employee shall be paid gratuity at the rate of 7 days wages for each season.

Gratuity in case of disabled employee (Sec.4)

• If an employee becomes disabled due to an accident or disease so that he becomes

incapable of performing the work which he was performing before such accident or
disease, but is re–employed on reduced wages on some other job, he shall be paid
gratuity as follows:

Gratuity in case of disabled Employee

• For the period preceding the disablement

On the basis of wages last drawn by the employee at the time of disablement.

• For the period subsequent to disablement

On the basis of reduced wages last drawn by the employee at the time of termination of
service.

Mode of Payment of Gratuity

• By Cash.
• By DD or Cheque, if so desired by the payee.

95
 • By Postal Money Order (after deducting the commission payable) if the payee so
desires and the amount of gratuity payable is less than Rs.1000.

Note:

• The details of payment shall be sent by the employer to the controlling authority.

Forfeiture of Gratuity to the extent of loss [Sec.4(6)]

• If the service of an employee are terminated;

• For any act, wilful omission or negligence;
• Resulting in damage or loss or destruction of the property of the employer;
• Then the gratuity payable to the employee shall be forfeited to the extent of such
damage or loss.

Forfeiture of whole amount of Gratuity [Sec. 4(6)]

• If the services of an employee are terminated.

• For his riotous or disorderly conduct or any other act of violence on his part, or for any
act which constitutes an offence involving moral turpitude.
• Then the gratuity payable to the employee shall be wholly exempt.

Compulsory Insurance (Sec.4A)

• Every employer shall get his establishment registered with the controlling authority.
• The registration shall be done within the prescribed time and in prescribed manner.
• An employer shall be required to be registered only if he has taken insurance or he has
established an approved gratuity fund.
• Every employer shall take insurance against is liability for payment of gratuity under
the Act.
• The insurance shall be taken from LIC or any other prescribed insurance company.
• However, employer of an establishment belonging to or under the control of Central
Government or State Government are exempted from the operations of Sec.4A.

Exemption from Provisions of the Act (Section 5)

96
The Exemption:

• Can be given only by way of notification in the Official Gazette.

• Shall be subject to such conditions as may be specified in the notification.
• May be given prospectively or retrospectively.

Nomination (Section 6)

• Every employee, who has completed 1 year of service, is compulsory required to make
a nomination (Form F).
• The Nomination must be made within 30 days of completion of one year of service.
• The Nomination must be made in favour of one or more members of the family
(nomination shall be void if it is made in favour of a person who is not a member of his
family).
• If at the time of making nomination the employee does not have a family, the
nomination may be made in favour of any person.
• The Employee may distribute the amount of gratuity amongst more than one nominee.
• The Nomination made by an employee may be varied by him at anytime.
• If the nominee dies before the death of employee, the employee shall make a fresh
nomination.
• Nomination comes into operation from the date of receipt of the same by the employer.
• Every Nomination, fresh nomination or modification of nomination, as the case may
be, shall be sent by the employee to his employer, who shall keep the same in his safe
custody.

Application for the Payment of Gratuity [Section 7]

• Application can be made by

▪ An employee who is eligible for payment of gratuity;
▪ Any person authorised in writing by such employee;
▪ Nominee of the employee (if the deceased person had made the nomination);
▪ Legal heir of the employee (if the deceased person had not made the nomination);
• Application shall be made to the employer in writing within 30 days from which the
gratuity becomes payable.
• If the date of the superannuation or retirement of the employee is known in advance the
employee may apply to the employer before 30 days.

97
Determination by the employer (Section 7)

• As soon as the gratuity becomes payable the employer shall determine the amount of
gratuity payable;
• The employer shall give the notice specifying the amount of gratuity to the controlling
authority and employee.
• In Rajendra Deva v. Addl. Labour Commissioner, Kanpur-cum-Appellate
Authority (1999 II LLJ 211 Alld.) It has been held that the deposit of the amount with
the appellate authority would not absolve the employer of its liability to pay interest
once it is established that the employer has failed to discharge the obligation cast upon
it by sub-sections (2) and (3) of Section 7 of the Act.

Gratuity disputes (Section 7)

• In case of dispute, the employer shall deposit

▪ With the controlling authority such amount as he admits to pay to the employee.
▪ The Controlling authority shall hold an enquiry and shall give reasonable
opportunity of being heard to the parties concerned.
▪ Thereafter the controlling authority shall determine the gratuity payable.
▪ If the amount determined by the controlling authority is more than the amount
deposited by the employer, the controlling authority shall direct the employer to pay
the balance amount.

Appeals against the order of the Controlling Authority (Section 7)

• Any person aggrieved by an order of the Controlling Authority may appeal with the
Appellate Authority.
• The Appeal may be filed within 60 days from the date of receipt of order of the
controlling authority which may be further extended to 60 days more or sufficient
cause.
• Appeal by the employer shall not be admitted unless he deposits with the appellate
authority a sum equal to the amount of gratuity determined by controlling authority.
• The Appellate authority shall give a reasonable opportunity of being heard to the parties
concerned.
• Thereafter, the appellate authority may confirm, modify or reverse the decision of the
controlling authority.

98
Inspectors [Sec.7A & 7B]

• The Inspectors shall be appointed by Appropriate Government by Notification in the

Official Gazette
• Every Inspector shall be deemed to be a ‘public servant’ within the meaning of section
21 of IPC.
• Such number of inspectors may be appointed as Appropriate Government may deem
fit.
• Appropriate Government may define the area to which the authority of an inspector
shall extend. Where two or more inspectors are appointed for the same area,
Appropriate Government may distribute or allocate work to be performed by them(that
is Appropriate Government may define the limits within which the inspector shall
exercise jurisdiction)
• To call such information from the employer as he considers necessary.
• To enter into or inspect, at all reasonable times, any premises of any establishment,
factory, mine oilfield, plantation port or railway company or shop to which this Act
applies, any books, registers, records, notices and other documents.
• To examine the employer and his servants.
• To make copies and take extracts of any books, registers, records, notices and other
documents.
• To exercise such other powers as may be prescribed.

Purpose of Appointment:

• To ascertain whether or not the provisions of the Act have been complied with by an
employer.

Duties of Owners etc.:

• To produce accounts, books, registers or other documents required by the inspector;

• To give information required by the Inspector.

Recovery of Gratuity (Section 8)

• If the employer fails to pay the gratuity within the prescribed time (that is within 30
days of termination of employment), the controlling authority is empowered to issue a
certificate to the Collector to recover the amount of Gratuity.

99
 • The Employer shall also be liable to pay Compound Interest at such rate as may be
notified by CG from time to time.
• The Interest shall be paid from the date of expiry of the prescribed period and ending
with actual date of payment of Gratuity.
• The Interest payable shall not exceed the amount of Gratuity payable

Penalties (Section 9)

• Knowingly making false statement/false representation to avoid to make payment

- Imprisonment up to 06 months, or with fine which may extend to Rs.10,000/- or both.
• Failure to comply with any provisions of this Act - Shall be punishable with
imprisonment up to 1 year but will not be less than 3 months or with fine, which will
not be less than Rs.10,000/-but may extend up to Rs.20,000/- or with both.
• Any offense relating to Non-payment of any gratuity - Employer shall be punishable
with imprisonment for a term which shall not be less than 6 months but may extend to
2 years, unless the court for reasons recorded decides for a lesser term of imprisonment
or a fine, which would meet.

Protection of Gratuity (Section 13)

• Gratuity payable to an employee shall not be liable to attachment in execution of any

decree or order of any civil, revenue or criminal court.
• It is immaterial as to whether the gratuity is payable to the employees
▪ Under the act; or
▪ In an establishment exempted u/s 5.

Consequences of default by employee

The employer shall not be liable to pay any interest

• If delay in payment of gratuity is due to the fault of employee.

• The employer has obtained permission in writing from the controlling authority for
delayed payment on such ground.

100
101
 MATERNITY BENEFIT ACT, 1961

• The Act prohibits the working of pregnant women for a specified period before and
after delivery.
• It also provides for maternity leave and payment of certain monetary benefits for
women workers during the period when they are out of employment on account of their
pregnancy.
• The Service of a woman employee cannot be terminated during the period except for
gross misconduct.
• The benefit is to protect the dignity of motherhood by providing for the full and healthy
maintenance of women and her child when she is not working.

Object of the Act:

• To provide for maternity benefit to women workers in certain establishments;

• To regulate the employment of women workers in such establishments for certain
period before and after child birth.

Maternity Benefit and Indian Constitution:

• Article 15(3) – empowers the State to make special provisions for women. The main
objective of Article 15(3) is based on “protective discrimination” keeping in view the
weak physical position of women.
• In Hindustan Antibiotics Ltd v. Workmen (AIR 1967 SC 948), it has held that labour
to whichever sector it may belong in particular region and in a particular industry will
be treated on equal basis.
• Article 15 provides that the State shall not discriminate against any citizen on grounds
only of religion, race, caste, sex, place of birth or any of the. Clause (3) of this article
provided.
• Article 21 – the State must guarantee to a pregnant working woman all the facilities
and assistance that she requires while protecting her employment as well as her own
and her child’s health.
• Article 41 – requires the State to make effective provision for securing the right to work
and to education.
• Article 42 – requires that the State shall make provision for securing just and humane
conditions of work and for maternity relief.

102
Definitions

"Child" [Section 3 (b)] includes a still-born child;

“Commissioning mother” [Section 3(ba)] means a biological mother who uses her egg to
create an embryo implanted in any other woman;’

"Delivery" [Section3(c)] means the birth of a child;

"Employer" [Section 3(d)] means-

(i) in relation to an establishment which is under the control of the government a person or
authority appointed by the government for the supervision and control of employees or where
no person or authority is so appointed, the head of the department;
(ii) in relation to an establishment under any local authority, the person appointed by such
authority for the supervision and control of employees or where no person is so appointed, the
chief executive officer of the local authority;
(iii) in any other case, the person who, or the authority which, has the ultimate control over the
affairs of the establishment and where the said affairs are entrusted to any other person whether
called a manager, managing director, managing agent, or by any other name, such person;

"Establishment" [Section 3(e)] means-

(i) a factory;
(ii) a mine;
(iii) a plantation;
(iv) an establishment wherein persons are employed for the exhibition of
equestrian, acrobatic and other performance;
(iva) a shop or establishment; or
(v) an establishment to which the provisions of this Act have been declared under
sub-section (1) of section 2 to be applicable;]

"Factory" [Section 3(f)] means a factory as defined in clause (m) of section 2 of the Factories
Act, 1948 (63 of 1948);

103
"Maternity benefit" [Section 3(h)] means the payment referred to in sub-section (1) of
section 5;

"Medical termination of pregnancy" [Section 3(ha)] means the termination of pregnancy

permissible under the provisions of Medical Termination of Pregnancy Act, 1971;]

"Miscarriage" [Section 3(j)] means expulsion of the contents of a pregnant uterus at any
period prior to or during the twenty-sixth week of pregnancy but does not include any
miscarriage, the causing of which is punishable under the Indian Penal Code (45 of 1860);

"Wages" [Section 3(n)] means all remuneration paid or payable in cash to a woman, if the
terms of the contract of employment, express or implied, were fulfilled and includes-

(1) such cash allowances (including dearness allowance and house rent allowances) as a woman
is for the time being entitled to,
(2) incentive bonus, and
(3) the money value of the concessional supply of food grains and other articles but does not
include-
(i) any bonus other than incentive bonus;
(ii) over-time earnings and any deduction or payment made on account of fines;
(iii) any contribution paid or payable by the employer to any pension fund or provident fund
or for the benefit of the woman under any law for the
time being in force; and
(iv) any gratuity payable on the termination of service;

Women prohibited from employment during certain period: (Section 4)

(1) No employer shall knowingly employ a woman in any establishment during the six weeks
immediately following the day of her delivery or her miscarriage.

(2) No woman shall work in any establishment during the six weeks immediately following the
day of her delivery or her miscarriage.

(3) Without prejudice to the provisions of section 6, no pregnant woman shall, on a request
being made by her in this behalf, be required by her employer to do during the period specified
in sub- section(4) any work which is of an arduous nature or which involves long hours of

104
standing, or which in any way is likely to interfere with her pregnancy or the normal
development of the foetus, or is likely to cause her miscarriage or otherwise to adversely affect
her health.

(4) The period referred to in sub-section (3) shall be—

(a) the period of one month immediately preceding the period of six weeks, before the
date of her expected delivery;

(b) any period during the said period of six weeks for which the pregnant woman does
not avail of leave of absence under section 6.

Eligibility and Maternity Benefits

Persons entitled to Maternity Benefit:

• Every woman employee, whether employed directly or through a contractor, who has
actually worked in the establishment for a period of at least 80 days during the 12
months immediately preceding the date of her expected delivery, is entitled to receive
maternity benefit.
• No woman shall be entitled to maternity benefit unless she has actually worked in an
establishment of the employer from whom she claims maternity benefit, for a period of
not less than eighty days in the twelve months immediately preceding the date of her
expected delivery.
• For calculating the number of days on which a woman has actually worked during the
preceding 12 months, the days on which she has been laid off or was on holidays with
wages shall also be counted.
• There is neither a wage ceiling for coverage under the Act nor there is any restriction
as regards the type of work a woman is engaged in.
• In Municipal Corporation of Delhi v. Female Workers’ (Muster Rolls) and
Another, [2000 (2) SCR 171] female workers employed by Municipal Corporation,
Delhi on daily wages raised a demand for grant of maternity leave which was made
available only to regular female workers but was denied to them on the ground that they
were not regularised.
• The Respondents, the Municipal Corporation of Delhi stated that it granted maternity
leave to its regular female workers but not to the daily wage ones, that is, the ones on
the muster rolls.

105
 • The Respondents argued that the practice was unfair as there was hardly any difference
in the work allotted to female workers who were regular and those who were on daily
wage.
• Accepting the contention, the Supreme Court upheld the right of female construction
workers to be granted maternity leave by extending the scope of the Maternity Benefits
Act, 1961 to daily wage workers as long as they fulfilled Section 5(2).
• In Rakhi P.V. and Others V. State of Kerala & Another, [2018 (2) KHC 251] it was
held that a woman employee cannot be denied maternity benefits merely because her
status is a contractual employee. And held that a women cannot be compelled to choose
between motherhood and employment.

Right to payment of maternity benefit: (Section 5)

• Every working women is entitled to receive maternity benefits for the period of her
actual absence during the period immediately preceding the day of her delivery, the
actual day of her delivery and any period immediately following that day and it is the
liability of the employer to pay such benefits at the rate of average daily wage of the
woman.
• Average daily wage is calculated for the three-calendar month preceeding the date she
absents herself.
• The Maximum period of maternity benefit shall be 26 weeks of which not less than 8
weeks shall precede the date of her expected delivery [Section 5(3)].

Continuance of payment of maternity benefit in certain cases: (Section 5A)

• Every woman entitled to the payment of maternity benefit under this Act shall,
notwithstanding the applicability of the ESI Act to the factory or other establishment in
which she is employed, continue to be so entitled until she becomes qualified to claim
maternity benefit under the ESI Act.

Payment of maternity benefit in certain cases: (Section 5B)

• Every woman who may be entitled for the maternity benefit under this Act –

a) employed in a factory or other establishment to which the provisions of the

Employees' State Insurance Act, 1948 apply;

106
 b) whose wages (excluding remuneration for over-time work) for a month exceed the
amount specified in section 2 (9)(b) of the ESI Act;

c) Who fulfil conditions as in section 5(2) of the Maternity benefit Act.

Payment of medical bonus: (Section 8)

• Every woman entitled to maternity benefit under this Act shall also be entitled to
receive from her employer a medical bonus, if no pre-natal confinement and post-natal
care is provided for by the employer free of charge.

Leave for Miscarriage and Illness: (Section 9)

• In case of miscarriage or medical termination of pregnancy, a woman shall, on

production of the prescribed proof, be entitled to leave with wages at the rate of
maternity benefit, for a period of 6 weeks immediately following the day of her
miscarriage or medical termination of pregnancy.

Leave for Tubectomy Operation: (Section 9A)

• In case of tubectomy operation, a woman shall, on production of prescribed proof, be

entitled to leave with wages at the rate of maternity benefit for a period of two weeks
immediately following the day of operation.

Leave for Illness: (Section 10)

• Leave for a maximum period of one month with wages at the rate of maternity benefit
are allowable in case of illness arising out of pregnancy, delivery, premature birth of
child, miscarriage or medical termination of pregnancy or tubectomy operation.

Nursing breaks: (Section 11)

• Every woman delivered of a child who returns to duty after such delivery shall, in
addition to the interval for rest allowed to her, be allowed in the course of her daily
work two breaks of the prescribed duration for nursing the child until the child attains
the age of fifteen months.

Dismissal during absence of pregnancy: (Section 12)

107
(1) When a woman absents herself from work in accordance with the provisions of this Act, it
shall be unlawful for her employer to discharge or dismiss her during or on account of such
absence or to give notice of discharge or dismissal on such a day that the notice will expire
during such absence, or to vary to her disadvantage any of the conditions of her service.

(2) (a) The discharge or dismissal of a woman at any time during her pregnancy, if the woman
but for such discharge or dismissal would have been entitled to maternity benefit or medical
bonus referred to in section 8, shall not have the effect of depriving her of the maternity benefit
or medical bonus: Provided that where the dismissal is for any prescribed gross misconduct,
the employer may, by order in writing communicated to the woman, deprive her of the
maternity benefit or medical bonus or both.

(b) Any woman deprived of maternity benefit or medical bonus, or both, or discharged or
dismissed during or on account of her absence from work in accordance with the provisions of
this Act, may, within sixty days from the date on which order of such deprivation or discharge
or dismissal is communicated to her, appeal to such authority as may be prescribed, and the
decision of that authority on such appeal, whether the woman should or should not be deprived
of maternity benefit or medical bonus, or both, or discharged or dismissed shall be final.

No deduction of wages in certain cases: (Section 13)

• No deduction from the normal and usual daily wages of a woman entitled to maternity
benefit under the provisions of this Act shall be made by reason only of—

(a) the nature of work assigned to her by virtue of the provisions contained in sub-
section (3) of section 4; or

(b) breaks for nursing the child allowed to her under the provisions of section 11.

Appointment of Inspectors: (Section 14)

• The Appropriate Government may, by notification in the Official Gazette, appoint such
officers as it thinks fit to be Inspectors for the purposes of this Act and may define the
local limits of the jurisdiction within which they shall exercise their functions under
this Act.

Powers and duties of Inspectors: (Section 15)

108
 • An Inspector may, subject to such restrictions or conditions as may be prescribed,
exercise all or any of the following powers, namely: --

(a) enter at all reasonable times with such assistants, if any, being persons in the service
of the Government or any local or other public authority, as he thinks fit, any premises
or place where women are employed or work is given to them in an establishment, for
the purposes of examining any registers, records and notices required to be kept or
exhibited by or under this Act and require their production for inspection;

(b) examine any person whom he finds in any premises or place and who, he has
reasonable cause to believe, is employed in the establishment: Provided that no person
shall be compelled under this section to answer any question or give any evidence
tending to incriminate himself;

(c) require the employer to give information regarding the names and addresses of
women employed, payments made to them, and applications or notices received from
them under this Act; and

(d) take copies of any registers and records or notices or any portions thereof.

Inspectors to be public servants: (Section 16)

• Every Inspector appointed under this Act shall be deemed to be a public servant within
the meaning of section 21 of the Indian Penal Code.

Period for Which Benefit Allowed

• The Maximum period for which any woman shall be entitled to maternity benefit shall
be 26 weeks in all whether taken before or after childbirth. However, she cannot take
more than 8 weeks before her expected delivery.
• In Ram Bahadur Thakur (P) Ltd. v Chief Inspector of Plantations, [1982 (2) LLJ
20] a female worker employed at the Pambanar Tea Estate was denied maternity
benefits on the grounds that she had actually worked for 157 days instead of the 160
days required to qualify for them.
• The Supreme Court, however, held that for the purposes of computing maternity
benefits, all days including Sundays and unpaid holidays must be taken into
consideration.

Notice of claim for maternity benefit and payment thereof: (Section 6)

109
 • A Woman employee entitled to maternity benefit may give a notice in writing (in the
prescribed form) to her employer, stating as follows:
▪ that her maternity benefit may be paid to her or to her nominee (to be specified in
the notice);
▪ that she will not work in any establishment during the period for which she
receives maternity benefit; and
▪ that she will be absent from work from such date (to be specified by her), which
shall not be earlier than 6 weeks before the date of her expected delivery.
• The notice may be given during the pregnancy or as soon as possible, after the delivery.
On receipt of the notice, the employer shall permit such woman to absent herself from
work after the day of her delivery. The failure to give notice, however, does not
disentitle the woman to the benefit of the Act.
• The Woman shall be entitled to maternity benefit even if she has not given an
application. In any such case an Inspector may either of his own motion or on an
application made to him by the woman, order the payment of such benefit or amount
within such period as may be specified in the order.

Penalties for Contravention of Act by Employer: (Section 21)

• For failure to pay maternity benefit as provided for under the Act, the penalty is
imprisonment up to one year and fine up to Rs.5000. The minimum being 3 months and
Rs. 2000 respectively.
• For dismissal or discharge of a woman as provided for under the Act, the penalty is
imprisonment up to one year and fine up to Rs.5000. The minimum being 3 months and
Rs.2000 respectively.

The Maternity Benefit (Amendment) Act, 2017

• The Amendment extends the period of maternity leave from 12 to 26 weeks.
• However, this increase in maternity leave does not apply to women with two or more
surviving children. Such women will be entitled to 12 weeks of leave.
• The Government has stated that the amendment extend the period of maternity leave to
26 weeks to ensure maternal care to the child during early childhood.
• It has also noted that such early care is essential for the growth and development of the
child.

110
• This objective could be defeated if sufficient maternity leave is not given in the case of
a third born child.
• Currently under the 1961 Act, the minimum maternity leave of 12 weeks applies in all
cases, regardless of the number of previous children.

111
112
 FACTORIES ACT, 1948

• Factories Act is a beneficial piece of legislation existing since 1881 and is focussed on
achieving the objective of protecting workers exposed in factories against industrial or
occupational risks.
• It aims at regulating working hours, weekly off, provisions regarding women and
children etc.
• It imposes upon the owners and occupiers obligations to protect the workers. It was
amended in 1911, 1923, 1935, and 1987.
• But the most important amendments were made in 1948 and included safely of working
place, health provisions, working hours, weekly off, paid leave etc.
• Today however factory and industry are understood to be interchangeable. But this is
incorrect.
• Industry is a steady and systematic activity in which trade is organized whereas factory
refers to the place where such activities are carried on.
• The entire day to day activity taking place in the factory is governed by the Factories
Act, 1948.

Object and Scope of the Factories Act

• The Main objectives of the Indian Factories Act, 1948 are to regulate the working
conditions in factories, to regulate health, safety welfare, and annual leave and enact
special provision in respect of young persons, women and children who work in the
factories.

Important Provisions of the Constitution of India relevant to the Factories Act

• The Fundamental Rights and the Directive Principles of State Policy of the Constitution
of India are also relevant to the Factories Act as the workers working therein are also
the Citizens of India and as such are entitled to those Rights.
• Article 14 - Dealing with Equality before Law
• Article 19 - Providing for Protection of Certain Rights regarding Freedom of
Speech
• Article 23 - dealing with Prohibition of Traffic in human beings and forced labour
• Article 24 - Prohibition of Employment of Children in Factories.

113
 • Article 32 - Remedies for Enforcement of Rights conferred by this Part of the
Constitution of India.
• Article 3 - Certain Principles of Policy to be followed by the State.
• Article 39-A - Equal Justice and Free Legal Aid.
• Article 42 - Provisions for Just and Humane Conditions of work and maternity benefit.
• Article 43 - Living wage, etc. for workers
• Article 43-A - Participation of Workers in Management and Industries

Conventions of International Labour Organisation and the Factories Act, 1948

1. ILO’s Convention No. 29 Relating to Forced
Labour.
2. Convention No. 105 Relating to Abolition of
Forced Labour.
3. Convention Nos. 3 & 103 Concerning Maternity
Protection.
4. Convention No. 183 Concerning Maternity
Benefit.
5. Convention Nos. 110, 4, 89 & 45 Dealing with Conditions
of Work and Night Work
of Women employed in
industry.
6. Convention Nos. 5, 10, 33 59, 60, 138 Concerning Minimum
Age for Admission to
employment.
7. Convention Nos. 6, 14, 79, Concerning Night Work
90 by Children and Young
persons.
8. Convention No. 146 Concerning Minimum
Age, National Policy,
Hazardous Employment,
Conditions of Work and
Enforcement.

114
 9. Convention No. 182 Concerning Worst Forms
of Child Labour.
10. ILO’s Convention No. 29 Relating to Forced
Labour.
11. Convention No. 105 Relating to Abolition of
Forced Labour.
12. Convention Nos. 3 & 103 Concerning Maternity
Protection.

Applicability
Short title, extent and commencement [Section 1]
• This Act may be called the Factories Act, 1948;
• It extends to the whole of India;
• It shall come into force on the 1st day of April, 1949.

Definitions [Section 2]
• "Factory" [Section 2(m)] means any premises including the precincts thereof-
(i) whereon ten or more workers are working, or were working on any day of the preceding
twelve months, and in any part of which a manufacturing process is being carried on with
the aid of power, or is ordinarily so carried on, or

(ii) whereon twenty or more workers are working, or were working on any day of the
preceding twelve months, and in any part of which a manufacturing process is being carried
on without the aid of power, or is ordinarily so carried on, but does not include a mine
subject to the operation of the Mines Act, 1952 (XXXV of 1952) or a mobile unit belonging
to the armed forces of the Union, a railway running shed or a hotel, restaurant or eating
place.

• "Manufacturing process" [Section 2(k)] means any process for-

(i) making, altering, repairing, ornamenting, finishing, packing, oiling, washing,
cleaning, breaking up, demolishing or otherwise treating or adopting any article or
substance with a view to its use, sale, transport, delivery or disposal; or

115
 (ii) pumping oil, water, sewage, or any other substance; or
(iii) generating, transforming or transmitting power; or
(iv) composing types for printing, printing by letter press, lithography, photogravure or
other similar process or book-binding; or
(v) constructing, reconstructing,, repairing, refitting, finishing or breaking up ships or
vessels; or
(vi) preserving or storing any article in cold storage.

• "Occupier" [Section 2(n)] of a factory means the person, who has ultimate control
over the affairs of the factory, Provided that-
(i) in the case of a firm or other association of individuals, any one of the individual
partners or members thereof shall be deemed to be the occupier;
(ii) in the case of a company, any one of the directors, shall be deemed to be the
occupier:
(iii) in the case of a factory owned or controlled by the Central Government or any State
Government, or any local authority, the person or persons appointed to manage the
affairs of the factory by the Central Government, the State Government or the local
authority, as the case may be, shall be deemed to be the occupier :

• Provided further that in the case of a ship which is being repaired, or on which
maintenance work is being carried out, in a dry dock which is available for hire,
(1) The owner of the dock shall be deemed to be the occupier for the purposes of any matter
provided for by or under-
(a) Section 6, section 7, section 7A, section 7B, section 11 or section 12;
(b) Section 17, in so far as it relates to the providing and maintenance of sufficient and
suitable lighting in or around the dock;
(c) Section 18, section 19, section 42, section 46, section 47 or section 49, in relation to
the workers employed on such repair or maintenance;

(2) The owner of the ship or his agent or master or other officer-in-charge of the ship or
any person who contracts with such owner, agent or master or other officer-in-charge to
carry out the repair or maintenance work shall be deemed to be the occupier for the purposes
of any matter provided for by or under section 13, section 14, section 16 or section 17 (save

116
 as otherwise provided in this proviso) or Chapter IV (except section 27) or section 43,
section 44 or section 45, Chapter VI, Chapter VII, Chapter VIII or Chapter IX or section
108, section 109 or section 110, in relation to-
(a) the workers employed directly by him or by or through any agency; and
(b) the machinery, plant or premises in use for the purpose of carrying out such repair
or maintenance work by such owner, agent, master or other officer-in-charge or person
;

• "Hazardous process"[Section 2(cb)] means any process or activity in relation to an

industry specified in the First Schedule where, unless special care is taken, raw
materials used therein or the intermediate or finished products, bye-products, wastes or
effluents thereof would-
(i) cause material impairment to the health of the persons engaged in or connected
therewith, or
(ii) result in the pollution of the general environment:

• Provided that the State Government may, by notification in the Official Gazette, amend
the First Schedule by way of addition, omission or variation of any industry specified
in the said Schedule;

• “Worker" [Section 2(l)] means a person employed directly or by or through any

agency (including a contractor) with or without the knowledge of the principal
employer whether for remuneration or not in any manufacturing process, or in cleaning
any part of the machinery or premises used for a manufacturing process, or in any other
kind of work incidental to, or connected with the manufacturing process, or the subject
of the manufacturing process but does not include any member of the armed forces of
the Union;

Health Measures in a Factory [Sections 11-20]

• These are provisions for the health of the workers employed in factories, to ensure they
are protected:

117
Cleanliness of the factory premises [Section 11]
• Every factory shall be kept clean and free from effluvia arising from any drain, privy
or other nuisance. It is specifically provided that in a factory:
▪ accumulations of dirt and refuse shall be removed daily, by sweeping or any other
method, from the floors and benches of work rooms and from stair cases and
passages, and disposed off in a suitable manner;
▪ the floor of every room shall be cleaned. This shall be done at least once every week
by washing, using disinfectant or by some other effective method;
▪ where a floor is liable to become wet in the course of any manufacturing process to
such an extent as is capable of being drained, effective means of drainage shall be
provided.
▪ all inside wall and partitions, all ceilings or tops of rooms and all walls, sides and
tops of passages and staircases shall be painted or varnished, and repainted and
revarnished at least once in a period of five years;
▪ where they are painted or varnished, be cleaned at least once in a period of 14
months by such methods as may be prescribed by the Government and where
painting or varnishing is not required, be kept white washed or colour washed, and
the white washing or colour washing shall be carried out at least once in every
period of 14 months.

Disposal of Wastes and Effluents [Section 12]

• Effective arrangement shall be made for the disposal of wastes and effluents arising out
of manufacturing process in the factories.

Ventilation and Temperature [Section 13]

• Section 13 provides for the maintenance of adequate ventilation and regulation of
temperature in the factories.
• Effective and suitable provisions shall be made in every factory for securing and
maintaining in every work room adequate ventilation by the circulation of fresh air, and
such a temperature as will secure to workers reasonable conditions of comfort, and
prevent injury to health.

118
 • The State Government shall prescribe the standards of adequate ventilation and
reasonable temperature for any factory or part thereof.

Dust and Fume [Section 14]

• In every factory, where due to manufacturing process, dust or fume or other impurity
arise which is likely to be injurious to the health of workers employed, effective
measures shall be taken to prevent its inhalation, and accumulation in any workroom.
• If it is necessary to install exhaust appliances, it would be installed near the point of
origin of the dust, fumes, or other impurity. Measures shall be taken to enclose such
points.

Artificial humidification [Section 15]

• In respect of all factories in which the humidity of the air is artificially increased, the
State Government may make rules,-
(a) prescribing standards of humidification;
(b) regulating the methods used for artificially increasing the humidity of the air;
(c) directing prescribed tests for determining the humidity of the air to be correctly
carried out and recorded;
(d) prescribing methods to be adopted for securing adequate ventilation and cooling of
the air in the workrooms.
• In any factory in which the humidity of the air is artificially increased, the water used
for the purpose shall be taken from a public supply, or other source of drinking water,
or shall he effectively purified before it is so used.
• If it appears to an Inspector that the water used in a factory for increasing humidity
which is required to be effectively purified under sub-section (2) is not effectively
purified he may serve on the manager of the factory an order in writing, specifying the
measures which in his opinion should be adopted, and requiring them to be carried out
before specified date.

Overcrowding [Section 16]

• No room in any factory shall be overcrowded to such an extent which becomes injurious
to the health of the workers employed therein.

119
 • There shall be in every work room of a factory in existence on the date of the
commencement of this Act at least 9.9 cubic meters and of a factory built after the
commencement of this Act at least 4.2 cubic meters of space for every worker employed
therein.
• The Chief Inspector of factories by order in writing shall fix the maximum member of
workers to be employed in each room in the factory.

Lighting [Section 17]

• The Factories Act, 1948 provides for sufficient and suitable lighting, natural or artificial
where workers are working or passing through.
• Provision of cleaning of inner and outer surface is provided for all glazed windows and
skylights used for the lighting of the workrooms.
• In every factory, effective provision shall be made for the prevention of glare, either
directly from a source of light or by reflection from a smooth or polished surface.

Drinking Water [Section 18]

• In every factory, effective arrangement shall be made at suitable places for sufficient
supply of wholesome drinking water. Such places shall be legibly marked ‘Drinking
Water’ in a language understood by a majority of the workers employed in the factory.
• In case of factories employing more than 250 workers, provisions shall be made for
cooling drinking water during hot weather by effective means, and for its distribution.

Latrines and Urinals [Section 19]

• The Factories Act, 1948 requires that provision should be made for sufficient and
separate enclosed accommodation for male and female workers latrine and urinal
accommodation conveniently situated and accessible to workers while they are in the
factory;
• Where the number of workers in a factory is more than 250
▪ latrines and urinals shall be of prescribed sanitary types;
▪ the floor and internal walls of the latrines and urinals shall be laid with glazed tiles;
▪ floors and walls and the sanitary pans of latrines and urinals shall be thoroughly
washed and cleaned at least once in every seven days with suitable detergents or
disinfectants or with both.

120
Spittoons [Section 20]
• Sufficient number of spittoons must be provided in every factory and maintained in
clean and hygienic condition. No person shall spit within the premises of a factory
except in the spittoons.
• A Notice containing this provision and the penalty for its violation shall be prominently
displayed at suitable places in the factory premises.
• On certain date half an hour before sunrise, a cleaner employed by the management of
a factory who was on her way to work in the factory, tripped over a coil of wire, one
end of which had been forced into the tarmac, and suffered injuries, because of the
obstruction of the pavement (which was the natural place for person to pass on foot and
it was necessary for pedestrians coming along to do their work in the factory to walk
down the roads).
• The Court held that failure to turn on the lights that was the effective cause of the
accident that occurred.

Safety measures (Sections 21 – 40)

• Safety measures result in improving the conditions under which workers are employed
and work.
• It improves not only their physical efficiency, but also provides protection to their life
and limb.
• Inadequate provision of safety measures in factories may lead to increase in the number
of accidents.
• Human failure due to carelessness, ignorance, inadequate skill, and improper
supervision have also contributed to accidents, and the consequent need for safety
measures.
• Safety measures which are provided in the Factories Act, 1948, are considered to be
minimum in terms of adequacy. Such measures are required to be effectively
implemented
• The Factories Act provides for the following safety measures:

121
Fencing of Machinery [Section 21]
• Section 21 provides for the fencing of machinery including the fencing of every moving
part of a prime mover and every fly wheel connected to a prime mover and every part
of transmission machinery.

Work on or near Machinery in Motion [Section 22]

• Where in any factory, it becomes necessary to examine any part of machinery, while
the machinery is in motion, such examination shall be carried out only by specially
trained adult male workers.
• Such workers shall wear tight fitting clothing and their names shall be recorded in the
register prescribed in this connection.
• The machinery in motion with which such workers would otherwise be liable to come
in contact during the course of its examination, shall be securely fenced to prevent such
contact.
• No woman or young person shall be allowed to clean, lubricate or adjust any part of a
prime mover or transmission machinery, while the machinery is in motion.
• In State of Gujarat v. Nair, S.P., [(1965) I LLJ 528] the court explained that one of
the necessary conditions in section 22 is that all the spur, worm or other toothed friction
gearing in motion with which such worker is liable to come in contact shall be securely
fenced to prevent such contact.
• In the absence of any evidence to show that this was an excluded occasion by reason of
the worker permitted to do it in accordance with the provisions of section 22 (1) there
was breach of section 21(1)(iv)(e) which was punishable under section 92 of the
Factories Act, 1948.

Employment of Young Persons on Dangerous Machines [Section 23]

• The Factories Act prohibits employment of young persons on certain types of machines
as specified under Sec.23 of the Act. They can work only after they have been fully
instructed as to the dangers arising in connection with the machines and the precautions
to be observed.
• They should have received sufficient training in work at such machines. They should
be under adequate supervision by a person who has a thorough knowledge and
experience of the machines.

122
Striking Gear and Devices for cutting off Power [Section 24]
• In every factory suitable striking gear or other efficient mechanical appliances shall be
provided and maintained, and used to move driving belts to and from fast and loose
pulleys which form part of transmission machinery.
• Driving belts when not in use, shall not be allowed to rest or ride upon shaft in motion.
• In every factory, suitable devices for cutting off power in emergencies from running
machinery shall be provided and maintained in every workroom.
• In Jayathilal Dhaniji & Co. Oil Mills v. Employees' State Insurance Corporation
[(1966) 2 LLJ 542], the occupier failed to provide or maintain suitable striking gear or
other effective mechanical appliance to move driving belts to and from fast and loose
pulleys which formed part of the transmission machinery.
• He also failed to provide the equipment indicated in section 24. The court therefore held
that the appellant was guilty of negligence under section 24.

Self-acting Machine [Section 25]

• No traversing part of a self-acting machine in any factory, and no material carried thereon
shall, if the space over which it runs, is a space cover which any person is liable to pass,
whether in the course of his employment or otherwise, be allowed to run on its outward
or inward traverse within a distance of forty- five centimetres from any fixed structure
which is not a part of the machine.
• This is to safeguard the workers from being injured by self acting machines.

Casing of New Machinery [Section 26]

• Every set screw, bolt or key on any revolving shaft, spindle, wheel, or pinion shall be so
sunk, encased or otherwise effectively guarded as to prevent danger in all machinery
driven by power and installed in the factory.
• The State government is authorised to make rules specifying further safeguards to be
provided in respect of any dangerous part of any particular machine or class or
description of machines in this connection.

Prohibition of Employment of Women and Children near Cotton openers [Section 27]

123
 • No women or child shall be employed in any part of a factory where pressing a cotton
opener is at work.

Hoists and Lifts [Section 28]

• In every factory hoists and lifts shall be of good mechanical construction, sound material
and of adequate strength and they should be properly maintained.
• Where in the hoists and lifts used for carrying persons, the cage is supported by rope or
chain, there shall be at least two ropes or chains separately connected with the cage and
balance weight, and each rope or chain with its attachments shall be capable of carrying
the whole weight of the cage together with its maximum load.
• Efficient devices shall be provided and maintained capable of supporting the cage
together with its maximum load in the event of breakage of the rope, chain or
attachments. An efficient automatic device shall be provided and maintained to prevent
the cage from overrunning.

Lifting Machines, Chains, Ropes and Lifting Tackles [Section 29]

• ‘Lifting machine’ means any crane, crab, winch, toggle, pulley block, gin wheel,
transporter and runway.
• ‘Lifting tackle’ means any chain sling, rope sling, hook, shackle, swivel, coupling,
socket, clamp, tray or similar appliance, whether fixed or movable, used in connection
with the raising or lowering of persons, or loads by use lifting machines.
• In every factory, following safety measures shall be adopted in respect of every lifting
machine (other than a hoist and lift) and every chain, rope and lifting tackle for the
purpose of raising or lowering persons, goods or materials.
• All parts including the working gear of every lifting machine and every chain, rope or
lifting tackle shall be of good construction, sound material and adequate strength, and
free from defect.
• No lifting machine and no chain, rope, or lifting tackle shall be loaded beyond the safe
working load which shall be plainly marked on it.
• While any person is employed or working on or near the wheel track of a travelling crane
in any place where he would be liable to be struck by the crane, effective measures shall
be taken to ensure that the crane does not approach within six metres of that place.

124
 • A lifting machine or a chain, rope or lifting tackle shall be thoroughly examined in order
to arrive at a reliable conclusion as to its safety.

Revolving Machinery [Section 30]

• Effective measures shall be taken in every factory to ensure that the safe working
peripheral speed of every revolving vessel, cage, basket, flywheel, pulley disc or similar
appliance driven by power is not exceeded.
• A Notice indicating the maximum safe working peripheral speed of every revolving
machinery shall be put up in every room in a factory in which the process of grinding
is carried on.

Pressure Plant [Section 31]

• If in any factory, any part of the plant or machinery used in a manufacturing process is
operated at a pressure above atmospheric pressure, effective measures shall be taken to
ensure that the safe working pressure of such part is not exceeded.

Floors, Stairs, and Means of Access [Section 32]

• In every factory all floors, steps, stairs and passages shall be of sound construction and
properly maintained, and where it is necessary to ensure safety, steps, stairs, and
passages shall be provided with substantial hand rails and there shall, so far as is
reasonably practicable, be provided, and maintained safe means of access to every place
at which any person is at any time required to work.

Pits, Sumps, openings in floor etc. [Section 33]

• Pits, Sumps, openings in floor which may be a source of danger, shall be either securely
covered or securely fenced.
• Securely fencing a pit means covering or fencing it in such a way that it ceases to be a
source of danger.

Excessive Weights [Section 34]

125
 • No person shall be employed in any factory to lift, carry or move any load so heavy as
to be likely to cause him an injury.

Protection of Eyes [Section 35]

• If the manufacturing process carried on in any factory is such that it involves risk of
injury to the eyes from particles thrown off in the course of the process or risk to the
eyes by reason of exposure to excessive lights, effective screens or suitable goggles
shall be provided for the protection of persons employed on, or in the immediate
nearness of, the process.

Precautions against Dangerous Fumes and use of Portable Light [Section 36]
• No person shall enter any chamber, tank, vat, pit, pipe or other confined space in a
factory in which dangerous fumes are likely to be present to such an extent as to cause
risk of persons being overcome thereby;
• No portable electric light of voltage exceeding twenty four volts shall be permitted in
any factory for use inside any confined space. Where the fumes present are likely to be
inflammable no lamp or light, other than of flame–proof nature, shall be allowed to be
used.
• No person in any factory shall be allowed to enter any confined space, until all
practicable measures have been taken to reverse any fumes which may be present and
to prevent any ingress of fumes.
• Suitable breathing apparatus, reviving apparatus and belts and ropes shall be kept in
every factory for instant use. All such apparatus shall be periodically examined and
certified by a competent person to be fit for use.
• No person shall be permitted to enter in any factory, any boiler, furnace, chamber, tank,
pipe, or other confined space for the purpose of working or making any examination
until it has been sufficiently cooled by ventilation or otherwise to be safe for persons to
enter.

Explosive or Inflammable Dust, Gas etc. [Section 37]

126
 • If any manufacturing process in the factory produces dust, gas, fume, or vapour of such
a nature as is likely to explode on ignition, measures shall be taken to prevent any such
explosion by:
▪ effective enclosure of the plant or machinery used in the process;
▪ removal or prevention of the accumulation of such dust, gas, fume or vapour;
▪ exclusion or effective enclosure of all possible source of ignition.
• Measures shall also be adopted to restrict the spread and effects of the explosion by
providing in the plant or machinery of chokes, baffles, vents, or other effective
appliances.

Precautions in case of fire [Section 38]

• Every factory shall be provided with such means of escape in case of fire as may be
prescribed;
• In every factory, the doors affording exit from any room shall not be locked so that they
cannot be easily and immediately opened from the inside while any person is within the
room, and all such doors, unless they are of sliding type, shall be constructed to open
outwards.
• Every door, window or other exit affording a means to escape in case of fire shall be
distinctively marked in a language understood by the majority of the workers. Such
marking should be in red letters of adequate size or by some other effective and clearly
understood sign.
• An effective and clearly audible means of giving warning, in case of fire, to every
person shall be provided in the factory.
• A free passageway giving access to each means of escape in case of fire shall be
maintained for the use of all workers in the factory.
• Effective measures shall be taken to ensure that in every factory all workers are familiar
with the means of escape in case of fire and have been adequately trained in the routine
to be followed in such a case.

Power to require specifications of defective parts or tests of stability [Section 39]

• If it appears to the Inspector that any building or part of a building or any part of the
ways, machinery or plant in a factory is in such a condition that it may be dangerous to

127
 human life or safety, he may serve on the occupier or manager or both of the factory an
order in writing requiring him before a specified date-
(a) to furnish such drawings, specifications and other particulars as may be necessary
to determine whether such buildings, ways, machinery or plant can be used with safety,
or
(b) to carry out such tests in such manner as may be specified in the order, and to inform
the Inspector of the results thereof.

Safety of Building and Machinery [Section 40]

• In case it appears that any building, machinery or plant in a factory is in such a condition
that it is dangerous to human life or safety, the manager of the factory may be served
an order specifying measures to be adopted as prescribed.
• Further, in case it appears that the use of any building, machinery or plant in a factory
involves imminent danger to human life or safety, an order may be served prohibiting
the use of such building or machinery, until it has been repaired or altered.

Maintenance of buildings [Section 40A]

• If it appears to the Inspector that any building or part of a building in a factory is in
such a state of disrepair as is likely to lead to conditions detrimental to the health and
welfare of the workers, he may serve on the occupier or manager or both of the factory
an order in writing specifying the measures which in his opinion should be taken and
requiring the same to be carried out before such date as is specified in the order.

Safety Officers [Section 40B]

• In every factory-
(i) wherein one thousand or more workers are ordinarily employed, or
(ii) wherein, in the opinion of the State Government, any manufacturing process or
operation is carried on, which process or operation involves any risk of bodily injury,
poisoning or disease or any other hazard to health, to the person employed in the
factory,
the occupier shall, if so required by the State Government by notification in Official
Gazette, employ such number of Safety Officers as may be specified in that notification.

128
 • The duties, qualifications and conditions of service of Safety Officers shall be such as
may be prescribed by the State Government.

Power to make rules [Section 41]

• The State Government may make rules requiring the provision in any factory or in any
class or description of factories of such further devices and measures for securing safety
of persons employed therein as it may deem necessary.

Welfare provisions in Factories (Sections 42 – 50)

Washing facilities [Section 42]
• The Factories Act provides for
▪ adequate and suitable facilities for washing for the use of workers in the factories.
The workers who live in crowded areas have inadequate facilities for washing at
their homes, and bathing facilities add to their comfort, health and efficiency
▪ Separate and adequately screened washing facilities for the use of male and female
workers.
▪ Such facilities being conveniently accessible and being kept clean.

Facilities for storing and drying clothes [Section 43]

• A Suitable place for keeping clothes not worn during working hours shall be provided
in every factory.
• Facilities shall also be provided for the drying of wet clothes.

Facilities for sitting [Section 44]

• For workers who are to work in a standing position, suitable arrangement for sitting
shall be provided in the factories.
• This is to enable workers to take advantage of any opportunity for rest which may occur
in the course of their work.

First-aid appliances [Section 45]

• First-aid boxes or cupboards equipped with the required contents should be provided
for workers in every factory.
• This should be readily accessible to them during all working hours.

129
 • The number of such first aid boxes shall not be less than one for every 150 workers
employed in the factory.
• Such first-aid box shall be kept in the charge of a responsible person who is trained in
first-aid treatment and who shall be available during the working hours of the factory.
• In factories employing more than 500 workers, there shall be an ambulance room. It
should contain the prescribed equipments and be in the charge of such medical and
nursing staff as may be prescribed.

Canteens [Section 46]

• In factories employing more than 250 workers, there shall be a canteen for the use of
workers.

Shelters, restrooms and lunch rooms [Section 47]

• Adequate and suitable shelters, rest rooms, and lunchrooms with drinking water facility
shall be made in factories employing 150 workers or more.
• Workers can eat meals brought by them in such rooms. Rest and lunch rooms shall be
sufficiently lighted and ventilated. It shall be maintained in cool and clean conditions.

Crèches [Section 48]

• In every factory, where more than 50 women workers are employed, provision shall be
made for suitable and adequate room for the use of children under the age of six years
of such women.
• Such a room shall be adequately lighted and ventilated. It shall be maintained in clean
and sanitary conditions under the charge of a woman trained in the care of children and
infants.

Welfare Officer [Section 49]

• The Factories Act, 1948 also provides for employment of welfare officers with
prescribed qualification to look into the implementation of various facilities provided
for. Such a provision exists in every factory employing more than 500 workers.

130
Working Hours (Section 51 – 66)
Weekly Hours [Section 51]
• The Factories Act, 1948 prescribes that no adult worker shall be required or allowed to
work in a factory for more than forty-eight hours in any week.

Weekly holidays [Section 52]

• No adult worker shall be required or allowed to work in a factory on first day of the
week (hereinafter referred to as the said day), unless-
(a) he has or will have a holiday for whole day on one of three days immediately
before or after the said day, and
(b) the manager of the factory has, before the said day or the substituted day
under clause (a), whichever is earlier,-
▪ delivered a notice at the office of the Inspector of his intention to require the worker
to work on the said day and of the day which is to be substituted, and
▪ displayed a notice to that effect in the factory: Provided that no substitution shall be
made which will result in any worker working for more than ten days consecutively
without a holiday for a whole day.
• Notices given under sub-section (1) may be cancelled by a notice delivered at the office
of the Inspector and a notice displayed in the factory not later than the day before the
said day or the holiday to be cancelled, whichever is earlier.
• Where, in accordance with the Provisions of sub-section (1), any worker works on the
said day and has had a holiday on one of the three days immediately before it, that said
day shall, for the purpose of calculating his weekly hours of work, be included in the
preceding week.

Compensatory holidays [Section 53]

• The Workman should have one holiday for a whole day in a week.
• Where he was asked to work on his scheduled weekly holiday, he should be given
compensatory holiday within three days of his scheduled weekly holiday.

Daily Hours [Section 54]

131
 • Section 54 stipulates that subject to the provision of Section 51 no adult worker shall
be required or allowed to work in a factory for more than nine hours in any day.
• However, there is a provision to this section which states that subject to the prior
approval of the Chief Inspector, the daily maximum hours specified in Section 54 may
be exceeded in order to facilitate the change of shifts.
• After obtaining approval from the Inspector of Factories, the workman shall be allowed
to avail the compensatory holidays unavailed by him, within that month during which
the compensatory holidays are due or within two months immediately following that
month.

Interval for Rest [Section 55]

• The Timings of work should be fixed in such a way that no worker should be required
to work continuously for more than five hours; and he should be allowed to avail an
interval for rest of at least half-an hour during his work in a day.

Spread over [Section 56]

• The Period of work of a workman should be so arranged that inclusive of his interval
for rest under Section 55 should not spread over more than ten and a half hours in any
day.
• The Chief Inspector, may, however, increase the spread over up to twelve hours on
specific grounds.

Night Shifts [Section 57]

• Where a worker in a factory works on a shift which extends beyond midnight,
(a) for the purposes of sections 52 and 53, a holiday for a whole day shall mean in his
case a period of twenty-four consecutive hours beginning when his shift ends;
(b) the following day for him shall be deemed to be the period of twenty-four hours
beginning when such shift ends, and the hours he has worked after midnight shall be
counted in the previous day.

Prohibition of overlapping shifts [Section 58]

132
 • Work shall not be carried on in any factory by means of a system of shifts so arranged
that more than one relay of workers is engaged in work of the same kind at the same
time.

Extra wages for overtime [Section 59]

• Where a worker works in a factory for more than nine hours in any day or for more than
forty-eight hours in any week, he shall, in respect of overtime work, be entitled to wages
at the rate of twice his ordinary rate of wages.

Restriction on double employment [Section 60]

• No adult worker shall be required or allowed to work in any factory on any day on
which he has already been working in any other factory, save in such circumstances as
may be prescribed.

Notice of periods of work for adults [Section 61]

• There shall be displayed and correctly maintained in every factory, a notice of periods
of work for adults, showing clearly for every day the periods during which adult
workers may be required to work.

Further restrictions on employment of women [Section 66]

• Women should not be employed between 10 pm and 5am.
• The Working timing for women should be from 6am to 7pm.

Employment of young persons (Section 67 – 77)

• Prohibition of employment of children below the age of 14 years. [Section 67]
• A Child who has completed his fourteenth year or an adolescent shall not be required
or allowed to work in any factory unless (a) a certificate of fitness granted with
reference to him under section 69 is in the custody of the manager of the factory, and
(b) such child or adolescent carries while he is at work a token giving a reference to
such certificate. [Section 68]
• A Certificate of fitness certifying that a young person is fit to work at a factory should
be given in accordance with this section. An adolescent who possesses a certificate of
fitness should be considered as an adult. [Section 69]

133
 • Children can be employed only for 4.5 hours in a day. A female child cannot be required
to work between 8 am and 7 pm. [Section 71]
• Notice of period of work for children [Section 72]
▪ Every factory must display and correctly maintain a notice of periods work for
children.
▪ Such notice should show clearly the periods during which children may be
required or allowed to work.
▪ The Periods shown in the notice shall be fixed beforehand as per section 61
regarding period of work for adults, but there shall be no contravention of the
provisions of Section 71.
• Register of child workers: The Manager of every factory in which children are
employed shall maintain a register of child workers showing the child workers engaged
at the factory. [Section 73]
• Hours of work to correspond with notice under section 72 and register under section
73: No child shall be employed in any factory otherwise than in accordance with the
notice of periods of work for children displayed in the factory and the entries made
before hand against his name in the register of child workers of the factory. [Section
74]

Annual Leave with Wages (Section 78 – 84)

Application of Chapter VIII [Section 78]

• The Provisions of this Chapter shall not operate to prejudice of any right to which a
worker may be entitled under any other law or under the terms of any award, agreement
including settlement or contract of service.
• Provided that if such award, agreement (including settlement) or contract of service
provides for a longer annual leave with wages than provided in this Chapter, the
quantum of leave, which the worker shall be entitled to, shall be in accordance with
such award, agreement or contract of service.
• But in relation to matters not provided for in such award, agreement or contract of
service or matters which are provided for less favourable therein, the provisions of
sections 79 to 82, so far as may be, shall apply.

134
• The Provisions of this Chapter shall not apply to workers in any factory of any railway
administered by the Government, who are governed by leave rules approved by the
Central Government
• Every worker who has worked for a period of 240 days or more in a factory during a
calendar year shall be allowed during the subsequent calendar year, leave with wages
for a number of days calculated at the rate of –

▪ if an adult, one day for every twenty days of work performed by him during the
previous calendar year;
▪ if a child, one day for every fifteen days of work performed by him during the
previous calendar year.

• For the purposes of this sub-section-

(a) any days of lay-off, by agreement or contract or as permissible under the
standing orders;
(b) in the case of a female worker, maternity leave for any number of days not
exceeding twelve weeks; and
(c) the leave earned in the year prior to that in which the leave is enjoyed; shall
be deemed to be days on which the worker has worked in a factory for the
purpose of computation of the period of 240 days or more, but he shall not earn
leave for these days.
• If a worker is discharged or dismissed from service or quits his employment or is
superannuated or dies while in service, during the course of the calendar year, he or his
heir or nominee, as the case may be, shall be entitled to wages in lieu of the quantum
of leave to which he was entitled immediately before his discharge, dismissal, quitting
of employment, superannuation or death, calculated at the rates specified in sub-section
(1), even if he had not worked for the entire period specified in sub-section(1) or sub-
section (2) making him eligible to avail of such leave.

• For the leave allowed to him under the aforesaid section, a worker shall be entitled to
wages at a rate equal to the daily average of his total full time earnings for the day on
which he actually worked during the months immediately preceding his leave,
exclusive of any overtime and bonus but inclusive of dearness allowance and the cash

135
 equivalent of advantage accruing through the concessional sale to the worker of food
grains and other articles.

• Provided that in the case of a worker who has not worked on any day during the calendar
month immediately preceding his leave, he shall be paid at a rate equal to the daily
average of his total full time earnings for the days on which he actually worked during
the last calendar month preceding his leave, in which he actually worked, exclusive of
any overtime and bonus but inclusive of dearness allowance and the cash equivalent of
the advantage accruing through the concessional sale to the workers of food grains and
other articles.

• In Amgaud Sidram Hakke v. Maharashtra Small Scale Industries Development

Corporation Ltd. [1996 LLR 249], the Bombay High Court held that even if an
employee has earned leave to his credit that leave is to be sanctioned at the discretion
of the employer. If the employees choose to remain away from work, shoots
innumerable telegrams to the employer for extension of leave on vague excuses and
then finds himself in hot water, he does so at his peril.

Wages during leave periods [Section 80]

• For the leave allowed to him under section 78 or section 79, as the case may be, a
worker shall be entitled to wages at a rate equal to the daily average of his total full
time earnings for the day on which he actually worked during the months immediately
preceding his leave, exclusive of any overtime and bonus but inclusive of dearness
allowance and the cash equivalent of advantage accruing through the concessional sale
to the worker of food grains and other articles.
• Provided that in the case of a worker who has not worked on any day during the calendar
month immediately preceding his leave, he shall be paid at a rate equal to the daily
average of his total full time earnings for the days on which he actually worked during
the last calendar month preceding his leave, in which he actually worked, exclusive of
any overtime and bonus but inclusive of dearness allowance and the cash equivalent of
the advantage accruing through the concessional sale to the workers of food grains and
other articles.

136
 • The Cash equivalent of the advantage accruing through the concessional sale to the
worker of food grains and other articles shall be computed as often as may be
prescribed, on the basis of the maximum quantity of food grains and other articles
admissible to a standard family.
• Explanation 1 – ‘Standard family’ means a family consisting of a worker, his or her
spouse and two children below the age of fourteen years requiring in all three adult
consumption units.
• Explanation 2 – ‘Adult consumption unit’ means the consumption unit of a male
above the age of fourteen years; and the consumption unit of a female above the age of
fourteen years, and that of a child below the age of fourteen years shall be calculated at
the rates of 8 and 6 respectively of one adult consumption unit.
• The State Government may make rules prescribing:

(a) the manner in which the cash equivalent of the advantage accruing through the
concessional sale to a worker of food grains and other articles shall be computed; and

(b) the registers that shall be maintained in a factory for the purpose of securing
compliance with the provisions of this section.

Payment in advance in certain cases [Section 81]

• A Worker who has been allowed leave for not less than four days, in the case of an
adult, and five days, in the case of a child, shall, before his leave begins, be paid the
wages due for the periods of the leave allowed.

Mode of recovery of unpaid wages [Section 82]

• Any Sum required to be paid by an employer, under this Chapter but not paid by him,
shall be recoverable as delayed wages under the provisions of the Payment of Wages
Act, 1936 (IV of 1936).

Power to make rules [Section 83]

137
 • The State Government may make rules directing managers of factories to keep registers
containing such particulars as may be prescribed and requiring the registers to be made
available for examination by Inspectors.

Power to exempt factories [Section 84]

• Where the State Government is satisfied that the leave rules applicable to workers in a
factory provide benefits which in its opinion, are not less favourable than those for
which this Chapter makes provisions, it may by written order, exempt the factory from
all or any of the provisions of this Chapter subject to such conditions as may be
specified in the order.
• Explanation - For the purposes of this section, in deciding whether the benefits which
are provided for by any leave rules are less favourable than those for which this Chapter
makes provision, or not, the totality of the benefits shall be taken into account.

Special Provisions [Section 87]

• Section 87 empowers the State Government to make rules in a factory or class or
description of factories where manufacturing process or operation which is carried on,
may-
(i) expose any person employed in it to a serious risk or bodily injury, or
(ii) cause poisoning, or
(iii) expose disease.
• The rules may
(i) specify dangerous manufacturing process or operations,
(ii) prohibit or restrict the employment of women, adolescents or children in such
operation,
(iii) provide for the periodical medical examination of persons employed, or
seeking to be employed in the operation, and prohibit the employment of
persons not certified fit for such employment and require the payment by the
occupier of the factory of fees for such medical examination
(iv) provide for the protection for all persons employed in the operation or in the
vicinity of the places where it is carried on,
(v) prohibit, restrict or control the use of any specified materials or processes in
connection with the operation,

138
 (vi) require the provision of additional welfare amenities and sanitary facilities
and the supply of protective equipment and clothing, and lay down the
standards thereof, having regard to the dangerous nature of the manufacturing
process or operation,
(vii) provide for use of orders in writing by the Inspector or the Chief Inspector to
both the manager or the occupier of the factory directing them to carry out
such measures, and within such time, as may be specified in such order with
a view to removing conditions dangerous to the health of the workers, or to
suspend any process, where such process constitutes, in the opinion of the
Inspector or the Chief Inspector, as the case may be, imminent danger of
poisoning or toxicity.

Prohibition of employment on account of health hazard [Section 87A]

• Where it appears to the Inspector that conditions in a factory or part thereof are such
that they may cause serious hazard by way of injury or death, or to persons employed
therein or, to the general public in the vicinity, the Inspector may, by order in writing
to the occupier of the factory state the particulars in respect of which he considers the
factory or part thereof to be the cause of such serious hazard, and prohibit such occupier
from employing any number of persons necessary to attend to the minimum tasks till
the hazard is removed.

• Where in case of accident or dangerous occurrences, notice to be given to the prescribed

authorities. [Sections 88 and 88A]

• Where a worker contracts any occupational disease, medical officer should examine the
worker and thereafter notice should be sent to the prescribed authorities. [Section 89]

139
140
 THE TAMIL NADU SHOPS AND ESTABLISHMENTS ACT, 1947
• There is no enactment in this Province regulating the conditions of work of employees
in shops, commercial undertaking, restaurants, etc.
• The Weekly Holidays Act, 1942 is limited in scope in that it provides only for the grant
of holidays and does not contain provisions for various other matters affecting them,
such as hours of work, payment of wages, health and safety.
• It is considered that there should be a comprehensive measure in this Province to
regulate these matters on the lines of similar enactments in force in other Provinces.
• The Tamil Nadu Shops and Establishments Act, 1947 was enacted with a view to
provide for the regulation of conditions of work in shops, commercial establishments,
restaurants, theatres and other establishments, and for certain other purposes.

Applicability
• The Tamil Nadu Shop and Establishment Act, 1947 is a state legislation governing the
proper functioning and conduct of businesses, within the state of Tamil Nadu.
• The Act applies to persons employed in shops, commercial firms, restaurants, theatres,
etc., but will not apply to certain establishments and persons under the Central or
Provincial Government etc.
• The Tamil Nadu Shop and Establishment Act applies to all shops and commercial
establishments as defined above.
• However, the following persons or types of establishments will not come under the
purview of the Tamil Nadu Shop and Establishment Act:
▪ Persons employed in any establishment in a position of management.
▪ Persons whose work involves travelling and persons employed as canvassers and
care takers.
▪ Establishments under the Central and State Government, Local Authorities, the
Reserve Bank of India, and Cantonment Authorities, establishments in mines and oil
fields.
▪ Establishments in bazaars in places where fairs or festivals are held temporarily for a
period not exceeding fifteen days at a time.
▪ Establishments which, not being factories within the meaning of the Factories Act,
1948 are in respect of matters dealt within this Act, governed by a separate law for the
time being in force in the state.

141
Objectives
• The Objectives of the Act include:
▪ Regulation of the employment of workers in shops and commercial establishments.
▪ enable the Government to fix the opening and closing hours of shops, commercial
firms, restaurants, etc.
▪ Sale of goods other than newspapers in or adjacent to a street or public places after
the closing hour fixed for shops in that locality has been prohibited.
▪ Provision has also been made as in the Weekly Holidays Act, 1942, for granting to
the persons employed a compulsory holiday for one day in a week and if required
by Government, half-holiday also in a week.
▪ Prohibits the employment of children i.e., persons who have not completed 14
years, in shops, commercial firms, restaurant, etc. The employment of young
persons who have completed 14 but not completed 17and of women before 6.00
A.M and after 7.00 P.M has also been prohibited.
▪ Provision for the grant of annual holidays with pay to them.

Definitions
• Commercial establishment [Section 2(3)] means an establishment which is not a shop
but which carries on the business of advertising, commission, forwarding or
commercial agency, or which is a clerical department of a factory or industrial
undertaking or which is an insurance company, joint stock company, bank, broker's
office or exchange and includes such other establishment as the State Government may
bynotification1 declare to be a commercial establishment for the purposes of this Act.

• Establishment [Section 2(6)] means a shop, commercial establishment, restaurant,

eating-house, residential hotel, theatre or any place of public amusement or
entertainment and includes such establishment as the State Government may by
notification declare to be an establishment for the purposes of this Act;

• Person employed [Section 2 (12)] means

142
 ▪ in the case of a shop, a person wholly or principally employed therein in
connexion with the business of the shop;
▪ in the case of a factory or an industrial undertaking, a member of the clerical
staff employed in such a factory or undertaking ;
▪ in the case of a commercial establishment other than a clerical department of a
factory or an industrial undertaking;
▪ a person wholly or principally employed in connection with the business of the
establishment, and includes a peon;
▪ in the case of a restaurant or eating-house, a person wholly or principally
employed in the preparation or the serving of food or drink or in attendance on
customers or in cleaning utensils used in the premises or as a clerk or cashier;
▪ in the case of a theatre, a person employed as an operator, clerk, door-keeper,
usher or in such capacity as may be specified by the State Government by
general or special order;
▪ in the case of an establishment not falling under paragraphs (i) to (v) above, a
person wholly or principally employed in connection with the business of the
establishment, and includes a peon;
▪ in the case of all establishments, a person wholly or principally employed in
cleaning any part of the premises; but does not include the husband, wife, son,
daughter, father, mother, brother or sister of an employer who lives with and is
dependent on such employer;

• Shop [Section 2(16)] means any premises where any trade or business is carried on or
where services are rendered to customers and includes offices, store-rooms, godowns
and warehouses, whether in the same premises or otherwise, used in connection with
such business but does not include a restaurant, eating-house or commercial
establishment;

Opening and Closing hours [Section 7]

• As per Section 7 (Opening and closing hours of Shops) of the Tamil Nadu Shop and
Establishment Act, no person employed in any shop or commercial establishment shall
be required to work for more than eight hours in any day and forty eight hours in any
week without overtime wages.

143
 • Further, every person employed in any shop or commercial establishment should be
allowed in each week a holiday of one whole day.
• In case of establishments other than shops, Section 13 states that no establishment shall
be opened earlier or closed later than such hour as may be fixed by the Government, by
general or special order in that behalf.
• Provided that in the case of a restaurant or eating house, any customer who was being
served or was waiting to be served therein at the hour fixed for the closing may be
served during the quarter of an hour immediately following such hour.

Daily and weekly hours of work in shops [Section 9]

• Section 9 on the Daily and weekly hours of work in shops states that no person
employed in any shop shall be required or allowed to work therein for more than eight
hours in any day and forty eight hours in any week and in case of excess hours of work,
the same shall be subject to payment of overtime wages, if the period of work including
overtime work, does not exceed ten hours in any day and in the aggregate fifty-four
hours in any week.

• Similarly for establishments other than shops, Section 14 states that no person
employed in any establishment shall be required or allowed to work for more than eight
hours in any day and forty- eight hours in any week.

• Provided that any such person may be allowed to work in such establishment for any
period in excess of the limit fixed under this sub- section subject to payment of overtime
wages, if the period of work, including overtime work, does not exceed ten hours in
any day and in the aggregate fifty- four hours in any week.

• Also, no person employed in any shop shall be required or allowed to work therein for
more than four hours in any day unless he has had an interval for rest of at least one
hour.

Closing of shops and grant of holidays [Section 11]

144
 • Section 11 states that every shop shall remain entirely close on one day of the week
which day shall be specified by the shopkeeper in a notice permanently exhibited in a
conspicuous place in the shop; and the day so specified shall not be altered by the
shopkeeper more often than once in three months.
• Also, every person employed in a shop shall be allowed in each week a holiday of one
whole day.
• A Proviso has been added to the section which states that nothing in this sub section
shall apply to any person whose total period of employment in the week, including any
days spent on authorized leave, is less than six days, or entitle a person who has been
allowed a whole holiday on the day on which the shop has remained closed.
• The Weekly day on which a shop is closed in pursuance shall be specified by the shop
keeper in a notice permanently exhibited in a conspicuous place in the shop, and shall
not be altered by the shopkeeper more often than once in three months.
• Also, no deduction shall be made from the wage of any person employed in a shop on
account of any day or part of a day on which it has remained closed or a holiday has
been allowed in accordance with this section and
• If such person is employed on the basis that he would not ordinarily receive wages for
such day or part of a day, he shall nonetheless be paid for such day or part of a day the
wages he would have drawn, had the shop not remained closed, or had the holiday not
been allowed, on that day or part of a day.

Holidays [Section 16]:

• Every person employed in an establishment shall be allowed in each week a holiday of
one whole day.
• Provided that nothing in this sub- section shall apply to any person whose total period
of employment in the week, including any days spent on authorized leave, is less than
six days.

Employment of Children and Young Persons [Section 17]

• Section 17 stipulates that Children shall not to work in establishments while section 18
states young persons to work only between 6 a.m. and 7 p.m. and

145
 • Section 19 lays down the Daily and weekly hours of work for young persons in any
establishment which shall not be for more than seven hours in any day and forty- two
hours in any week nor shall such person be allowed to work overtime.

• As per the Tamil Nadu Shops and Establishments Act, no child shall be required or
allowed to work in any establishment.

• A ‘Child´ means a person who has not completed fourteen years of age.

• Further, no young person shall be required to work in any establishment before 6a.m.
and after 7 p.m.

• Further, a young person can only work for seven hours in any day and forty- two hours
in any week. ‘Young person’ means a person who is not a child and has not completed
seventeen years.

Health and Safety [Section 20 – 23]

• As per the Tamil Nadu Shops and Establishments Act, the following aspects relating to
health and safety must be maintained at all shops and commercial establishments:
Cleanliness:
• The Premises of every establishment must be kept clean and free from effluvia arising
from any drain or privy or other nuisance and should be cleaned at regular intervals.
Ventilation:
• The Premises of every establishment must be well ventilated.
Lighting:
• The Premises of every establishment must be sufficiently lighted during all working
hours.
Precautions against fire:
• In every establishment, precautions must be taken against fire.

Holidays and Sick leave [Section 25]

• Person employed in any shop or establishment shall be entitled, after twelve months of
continuous service with the establishment, to holidays with wages for a period of 12

146
 days in the subsequent period of twelve months, provided that such holidays with wages
may be accumulated up to a maximum of twenty- four days.
▪ to leave with wages for a period not exceeding twelve days, on the ground of any
sickness incurred or accident sustained by him and
▪ to casual leave with wages for a period not exceeding twelve days on any reasonable
ground.

• A Person employed shall be deemed to have completed a period of twelve months

continuous service within the meaning of this section, notwithstanding any interruption
in service during those twelve months brought about:
(i) by sickness, accident, or authorized leave not exceeding 90 days in the
aggregate of all three.
(ii) by a lockout
(iii) by a strike which is not an illegal strike
(iv) by intermittent periods of involuntary unemployment not exceeding
thirty days in the aggregate and authorized leave shall be deemed not to
include any weekly holiday or half- day holiday under this Act which
occurs at the beginning or end of an interruption brought about by the
leave.

Pay during annual holidays [Section 26]

• Every person employed shall, for the holidays or the period of leave allowed under
section 25, be paid at a rate equivalent to the daily average of his wages for the days on
which he actually worked during the preceding three months exclusive of any earnings
in respect of overtime.

Payment of Wages
• Employers are responsible for the payment of wages to persons employed.
All employers are required to fix a period in respect of which wages shall be
payable and wage periods shall not exceed one month.
• The Wages and the Deductions to be made are covered under sections 34 – 40 of the
Act.

147
Wages for Overtime Work [Section 31]
• Overtime Work shall be entitled to wages at twice the ordinary rates of wages.

Time for Payment of Wages [Section 32]

• Payment before the expiry of the fifth day after the last day of wage period in respect
of wages are payable.
• All Wages shall be paid in current coin or currency notes or both [Section 33]

Deductions which may be made from wages [Section 34]

• The Wages of a person employed shall be paid to him without deductions of any kind
except those authorised by or under this Act.
• Deduction from the wages of a person employed shall be made only in accordance with
the provisions of this Act.
• Fines;
• Deductions for absence from duty;
• Deductions for damage to or loss of goods expressly entrusted to the employed person
for custody;
• Deductions for house accommodation supplied by the employer;
• Deductions for such amenities and services applied by the employer as the government
may, by general or special order, authorise;
• Deductions for recovery of advances or for adjustment of overpayment of wages;
• Deduction of income tax payable by the employed person;
• Deductions required to be made by order of a court or other authority competent to
make such order.

Appointment of Inspectors [Section 42]

• The State Government may, by notification, appoint such officers of the State
Government or any local authority as they think fir to be inspectors for the purposes of
this Act, within such local limits as the State Government may assign.

148
Powers and Duties of Inspectors [Section 43]
• Any Inspector at all reasonable hours enter in to any premises, which is, or which he
has reason to believe is, an establishment, which such assistants and make such
examination of the premises and to the prescribed registers, records or notices as may
be prescribed.
• Inspectors to be Public Servants.
• Every Inspector shall be deemed to be a Public Servant within the meaning of Section
21 of the Indian Penal Code.

Penalties [Section 45]

• Any Employer who:
▪ Contravenes any of the provisions of Section 7,9 to 11, 13 to 23, 25, 26, 29 to 41and
47 shall be punishable for a first offence, with fine up to Rs.25 and for second or
subsequent offence, with fine which may extend to Rs.250.
▪ Contravenes the provisions of Section 8 shall be punishable for a 1 st offence, with
fine up to Rs.10 and for 2nd or subsequent offence with fine which may extend to
Rs.100.

Penalty for failure to comply with the provisions of Section 41A

• Any Employer who fails to comply with the provisions of Section 41-A shall be
punishable with
▪ imprisonment for a term which may extend to six months, or
▪ with fine, or
▪ with both and
• where such failure is a continuing one, with a further fine which may extend to two
hundred rupees for every day during which such failure continues after the conviction
for the first and the court trying the offence, if it fines the offender, direct that the whole
or any part of the fine realised from him shall be paid, by way of compensation, to any
person who, in its opinion, has been injured by such failure.

Penalty for obstructing Inspector [Section 46]

• Any person who wilfully obstructs an Inspector in the exercise of any power conferred
on him under this Act or any person lawfully assisting an Inspector in the exercise of

149
 such power, or who fails to comply with any lawful direction made by an Inspector,
shall be punishable with fine which may extend to two hundred and fifty rupees.

Maintenance of registers and records and display of notices [Section 47]

• Subject to the general or special orders of the State Government, an employer shall
maintain such register and records and display such notices as may be prescribed.

Delegation of powers [Section 48]

• The State Government may, by notification, authorize any officer or authority

subordinate to them, to exercise any one or more of the powers vested in them by or
under this Act, except the power mentioned in Section 49, subject to such restrictions
and conditions, if any, as may be specified in the notification.
• The Exercise of the powers delegated under sub-section (1) shall be subject to control
and revision by the State Government or by such persons as may be empowered by
them in that behalf.
• The State Government shall also have power to control and revise the acts or
proceedings of any person so empowered.

Power to make rules [Section 49]

• The State Government may make rules to carry out the purposes of this Act.
• In making a rule under sub-section (1), the State Government may provide that a
contravention thereof shall be punishable with fine which may extend to fifty rupees.
• The Power to make rules conferred by this section shall be subject to the condition of
the rules being made after previous publication.
• All rules made under this section shall be published in the Fort St. George Gazette and
on such publication shall have effect as if enacted in this Act.

Rights and privileges under other law, etc., not affected [Section 50]

• Nothing contained in this Act shall affect any rights or privileges which any person
employed in any establishment is entitled to on the date on which this Act comes into
operation in respect of such establishment, under any other law, contract, custom or
usage applicable to such establishment, if such rights or privileges are more favourable
to him than those to which he would be entitled under this Act.

150
Commissioner of labour to decide certain questions [Section 51]

• If any question arises whether all or any of the provisions of this Act apply to an
establishment or to a person employed therein or whether Section 50 applies to any case
or not, it shall be decided by the Commissioner of Labour and his decision there on
shall be final and shall not be liable to be questioned in any Court of Law.

Power of Government to suspend provisions of the Act during fairs and festivals [Section
52]

• On any special occasion in connection with a fair or festival or a succession of public

holidays, the State Government may, by notification, suspend for a specified period the
operation of all or any of the provisions of this Act.

Central Act XVIII of 1942 not to apply to establishments governed by this Act [Section
53]

• On and from the date on which this Act comes into operation in respect of an
establishment, the Weekly Holidays Act, 1942, shall cease to apply to such
establishment.

151